I have been commenting for several months that the broad-based earnings revisions data for the S&P 1500 names was robust and supportive of healthy equity markets, and there is NO CHANGE in this view.

Importantly, this continues to be a major support for our ongoing medium-term bullish view. My research still strongly suggests that despite the regular day to-day macro news and events that are present, the biggest story/driver for markets is that we are still in the early innings of a profit recovery that is being accompanied by unprecedented monetary and fiscal stimulus.

Broadly, there still remain three main areas of favorable earnings revision readings

1) Secular Growth/FAANG

2) Value/Cyclicals that are higher quality and generally more growthy (Capital Goods, Machinery, Semi related)

3) Value/Cyclicals that are part of deep recovery/Epicenter universe and deep commodity/industrial/consumer/interest rate cyclicals.

At the margin, the number of names in group 1 is stable while groups 2 and 3 are seeing an increase. And digging one level deeper, earnings revisions data is more or less favorable based on size.

Within Large Caps (S&P 500), the most favorable groups are Cyclicals In-Motion (1) followed by Cyclicals Recovery/Epicenter(2), and Growth(3). Within the Midcaps (S&P 400 ) and Small Caps (S&P 600 ), the most favorable names are Cyclicals Recovery /Epicenter(2), followed by Cyclicals In-Motion(1), and then Growth(3). And importantly, increase in favorable revisions data towards deep cyclicals (i.e. Epicenter) is most pronounced within small caps.

At the sector level, in our latest update we upgraded Financials. We also commented about how the earnings revisions for SMID banks was improving. This trend has clearly remained in place and spread up the cap scale to large caps as well. As we look out to 2021, we are evaluating if we should raise our views on the Financials sector even higher. Stay tuned for more on this.

Bottom Line: We are in the early innings of an earnings recovery cycle. I continue to recommend a barbelled portfolio approach of Secular Growth/FAANG and Value/Cyclicals stocks and encourage investors to shift from growth into value.

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