S&P 500 FORECAST: BULLISH
- The S&P 500[1] index is hovering near all-time highs as earnings season arrives
- Analysts are anticipating a 22% YoY earnings growth rate for the broader market in Q4
- Goldman Sachs, Bank of America, Morgan Stanley and Netflix results are in focus this week
The Dow Jones[2], S&P 500 and Nasdaq[3] 100 indices consolidated at the start of 2022, weighed by the rapid spread of the Omicron variant of Covid-19 and expectations that the Fed may kick off a rate-hiking cycle as early as March. Several Fed members expressed hawkish-biased views recently, supporting the narrative of three to four rate hikes this year after December’s inflation reading reached a four-decade high of 7%.
Though this has dampened appetite for the technology stocks, the financial sector has outperformed. Big banks are likely to benefit from widening interest rate margins and a broad recovery in the economy. While the Nasdaq 100 index has been range-bound over the past four weeks, the S&P index of regional banks soared 16% (chart below). This rally could carry on if big banks such as Goldman Sachs and Bank of America deliver positive earnings surprises next week.
Source: Bloomberg, DailyFX
According to Factset, the S&P 500 is expected to deliver a broad earnings growth rate of 21.8% YoY for the fourth quarter, marking the fourth straight quarter of earnings growth above 20%. The actual growth rate could be even higher as the majority of corporate America tends to give conservative EPS forecasts in an attempt to engineer positive surprises when realized results are published. Higher EPS readings may effectively bring down the price-to-earnings (PE) ratio for the S&P 500 index, paving the way for it to drive deeper into record territory.
