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Investors envision strong U.S. earnings growth as inflation fears deepen

By on June 21, 2021 0

NEW YORK (Reuters) – Investors are expecting an expected peak in June quarter earnings and prospects for future economic growth to support a record stock market that is raising fears of a sell-off among many traders.

FILE PHOTO: A trader talks on his phone on Wall Street outside the New York Stock Exchange (NYSE) in New York, United States, January 15, 2021. REUTERS / Brendan McDermid

For second quarter profits, which start next month, analysts expect a 64% jump from a year ago, the biggest increase for a quarter since the 2009 financial crisis, data shows. IBES from Refinitiv.

But investors could be hard to impress after the explosion in first quarter results, with many worried about inflationary pressures that could push the Federal Reserve to raise interest rates.

With rising inflation fears, investors will be keeping a close eye on the impact of rising input costs on profit margins.

Stronger-than-expected inflation fears hit the market this week after the Fed hinted it could tighten monetary policy sooner than many investors anticipated.

The next earnings season is still a few weeks away, but there’s a good chance the earnings will be even stronger than current estimates, said Jonathan Golub, chief U.S. equities strategist and head of quantitative research at Credit Suisse. Securities in New York.

“Right now, companies are able to pass any higher input costs on to their customers, so that profit margins are not under any pressure,” he said, noting whether profits are likely to surprise on the upside, price-to-earnings ratios “are probably overestimated.”

The S&P 500 is up 11% in 2021, close to records. Still, the index is trading at 22 times forward earnings, below the 23.5 times at the start of the year, according to Refinitiv.

Many companies raised their estimates for the second quarter during the first quarter earnings season, wrote Nick Raich, CEO of Earnings Scout, in a note.

“While it is still too early to be sure, it looks like the positive earnings momentum will persist into the 2Q 2021 period” and into the second half of 2021, he wrote.

The outlook for next year is less clear. S&P 500 earnings are currently expected to rise 36.5% in 2021 and 11.7% in 2022, according to Refinitiv.

Investors have flocked to the equity areas that tend to benefit the most from economic growth since the recovery from the pandemic began last year, but the question has become “how bad will growth be.” it sustainable, ”said Eric Freedman, chief investment officer at US Bank Wealth. Management in Minneapolis.

“There are concerns about what the first and second quarters of next year will look like,” he said. “Maybe this stimulus trade has gotten ahead, and I think that’s the message you’re seeing from the markets right now.”

Reporting by Caroline Valetkevitch in New York; Editing by Matthew Lewis