S&P 500 Ends At Another ATH, President Hosts Japanese PM
The market melted higher for much of the week as earnings started off pretty strong at most of the large banks. The S&P 500 closed at 4,185.47 up from 4,128.80 last Friday which was also an all-time-high. Other positive economic data continues trickling in. Growth rates are projected to be quite high in Q2. Despite the highs, we have seen Epicenter underperform over the last month, which was led by Technology. Health Care actually led this week with a 5D gain of 3.35%, followed by Materials at 2.91% and Utilities at 2.74%. The leadership struck us as odd, but we’re confident that Epicenter will pleasantly surprise when they report. Vaccination progress is immense and should permit a return to normal, perhaps a bit sooner than consensus thinks.
We know there’s been some pain in the Epicenter names, however, we still remain confident that these names contain the highest upside based on their capacity for upside Earnings surprises. We have upgraded our stock lists last week and added some names to the Power Epicenter list, be sure to check it out. We think some of the best names in the worst affected industries will begin flexing their new operating leverage in ways that will show unexpected strength to a wary consensus that seems perpetually enamored with Growth. We think this boom will be more smokestack-ey.
My colleague, Tom Lee will provide analysis as to why he believes the Energy sector will continue its impressive outperformance stretch after cooling off as of late, likely due to profit taking. As you can see, demand for key leading petroleum products is a lot higher than you might think given the current situation. Demand is nearing normal levels.
President Biden hosted Japanese Prime Minister Yoshi Suga at the White House under the backdrop of a more assertive China. It’s not an accident that even though there’s more Russian troops amassed on the Ukrainian border than on the eve of the annexation, the Biden Administration chose to make its first state visit one that sends a powerful message to China. In 1989 Francis Fukuyama wrote an essay called “The End of History’ in which he postulated that the defeat of the Soviet Union constituted the final episode in the ideological struggle on the global stage. In other words, democracy had vanquished its final foe and that its history would forever more be dominated by democratic governance. Seems from this week’s event’s he may have jumped the gun a little bit, no?
Despite the fact that the Chinese economy grew northward of 18% in the 1st quarter and that the US should soon be growing at one of the highest annual rates in many decades, their competition in the new “Great Game” of global power politics is ominously casting its shadow over the coming boom. An assertive President Xi’s recent power-grab in Hong Kong has elevated concerns that he might try the same in the disproportionately important island of Taiwan, where more and more of the world’s semi-conductors are being made. We explore a company that, despite being thousands of miles from Shenzen or Silicon Valley is right at the very middle of this emerging Sino-American technological competition. Be sure to check out this week’s Signal From Noise: ASML: The Jewel of The Empire. This may well be the most important company in the world that you’ve never heard of.
Look folks, here’s the bottom line. This coming earnings season will be different from the last four for a few reasons. Firstly top-line growth is expected to be solidly up YoY making for potential fireworks (due to March 2020 being ‘easy comps’). Company visibility should be considered stronger for 2021 compared to 3 months ago. It looks like the economy will also be largely open by early summer so companies are finally near that long foretold light at the end of the tunnel. In other words, why would you sell your Epicenter stocks right before they’re about to likely do what you bought them for in the first place? We are all about having a balanced portfolio and our new Granny Shots picks will be out very soon, but we continue to firmly believe that many Epicenter names are poised for once in a generation tail-winds on the top and bottom line. Cyclicals are also leading the upward earnings revision, which bodes very well.
At the risk of sounding rather obvious, we think that it’s likely Epicenter leads the gains in this coming earnings seasons by virtue of the fact that it has been leading positive revisions so far in 2021. Visibility has been improving and the country is opening and we’re only 3 months into 2021. Our bet is that the positive earnings revisions that have been led by Epicenter YTD continues throughout the rest of the year, at least.
As you can see, since the start of April, Epicenter stocks have been performing well, except for Energy which is down since the start of the month. We expect Energy to recover and we expect a lot of positive surprises this earnings seasons from strong names in Epicenter sectors. We are always on the lookout for a change in momentum and despite some recent bumps in the road, especially for Energy, we are still confident that you want to put your money to work in cyclical names.
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