Earnings Boom Coming?

1.) EARNINGS – Markets are deep into earnings season right now, and the results, estimates, and rates of change are really good. In fact, over the past 15 years, analysts have revised their EPS estimates down by an average of -2% between January and April. As you can see below, 2026 is a different story! Moreover, with 28% of the S&P 500 index reported, 84% of companies have delivered higher-than-expected earnings results, which is above the 5- and 10-year averages. In aggregate, companies are reporting EPS that are 12.3% above estimates. This is also higher than the 5- and 10-year averages. This is also a double-edged sword, though. As the EPS estimates get raised higher and higher, the rate at which companies likely beat those raised estimates gets squeezed tighter and tighter, which is what tends to set up the next correction. But that time is not yet. In fact, a historic earnings boom could be developing. Estimates are growing faster (rate of change) than they did in the mid-90s or late internet bubble years. Only the COVID recovery period saw a greater inflection. But this boom is unique because it’s not coming off an EPS drawdown.

2.) SENTIMENT – Speaking of TRENDS (which is really what I attempt to help you with…staying with the trend up until that trend is over), it’s always helpful to review where we are with sentiment as earnings are good and accelerating. Indexes continue to win, but people are unhappy, as I pointed out last week, with consumer sentiment readings hitting all-time lows! But one data point is never really enough. I also like to look at the so-called “smart money.” Cue the magazine cover indicator! Twice a year, Barron’s surveys portfolio managers and strategists across the country, which is best used as a contrarian indicator. By the time they’re all bullish, it usually pays not to be. When they’re bearish, like they were a year ago and back in 2016, that’s when you want to be buying stocks aggressively. Right now, they’re telling you the S&P 500 is headed lower for the rest of the year (read what they wrote on the podium). The average year-end target is actually below where the S&P 500 is today. It’s also well below Wall Street consensus. So if they think the market’s going lower from here, the bet we want to make is that it’s probably going higher. Sounds counterintuitive…I know…but that’s how this works. When they were this pessimistic a year ago, stocks moved higher. When they were pessimistic 10 years ago in the spring of 2016, stocks were entering a smooth, non-volatile uptrend. They’re not quite as bearish today as they were in those moments, but they’re still leaning the wrong way. From polls to sentiment to the negative real-world effects some are sadly experiencing…there’s pessimism everywhere.

3.) GOLD – The yellow metal is still below its trend level of $4,730. As long as it is below that, the price will likely struggle or just chop up and down. It would need to break above, and hold, $4,970 to revert back to a bullish (upward bias) trend. Will it? No idea. But the longer it remains below trend, the greater the potential for a re-test of the MARCH low area, near the 200-day moving average of $4,233.