DOW JONES FUNDAMENTALFORECAST: BULLISH
- Major US indices extended higher into the end of the week, buoyed by strong bank earnings
- Fiscal stimulus, vaccine rollouts and strong economic data may continue to support stocks
- The Dow Jones[1] index is trading at a 26.9 price-to-earnings (P/E) ratio, falling from 29.1 seen three weeks ago
A slew of upbeat bank results kicked off a robust earnings season, sending the Dow Jones, S&P 500[2] and Nasdaq[3] 100 indices to their record highs. Among the 22 S&P 500 companies that have reported results so far, more than 80% delivered positive earnings surprises. Goldman Sachs beat EPS estimate by over 84%, thanks to strong performance from its investment banking and trading business. Wells Fargo, JPMorgan, Citigroup and BoA have all smashed analysts’ forecasts with profits boosted by billions of dollars of reserve releases as the recovery took shape.
According to data compiled by FactSet, the estimated earnings growth rate for the S&P 500 is 24.5% for the first quarter. The actual results might be even higher as a majority of corporate America tends to give conservative EPS forecasts and deliver positive surprises. Higher EPS may effectively bring down the price-to-earnings (PE) ratio for major US indices, paving the way for them to drive deeper into record territory.
The US economic rebound appears to be gaining momentum, with the latest retail sales growth data beating forecasts by a wide margin. March retail growth hit 9.8% MoM, compared to a 5.9% estimate. This suggests that President Biden’s fiscal stimulus is working to revitalize consumer demand as households start to spend the stimulus checks. Meanwhile, weekly jobless claims registered their lowest level since the Covid-19 pandemic hit the job market in March 2020, coming in at
