Analysts expect earnings to be great. One bank says estimates are still too low.
[Analysts expect earnings to be great. One bank says estimates are still too low. – MarketWatch](https://www.marketwatch.com/story/as-earnings-season-kicks-off-1-investment-bank-says-expectations-still-arent-high-enough-as-it-lifts-s-p-500-forecast-11626173107?mod=home-page)

Last Updated: July 13, 2021 at 8:40 a.m. ET First Published: July 13, 2021 at 6:45 a.m. ET

By [Steve Goldstein](https://www.marketwatch.com/topics/journalists/steve-goldstein?mod=MW_author_byline)

Referenced Symbols

[**SPX-0.09%** ](https://www.marketwatch.com/investing/index/SPX?mod=refsymb_mw) [**JPM-0.79%** ](https://www.marketwatch.com/investing/stock/JPM?mod=refsymb_mw)[**GS0.06%** ](https://www.marketwatch.com/investing/stock/GS?mod=refsymb_mw) [**PEP1.79%** ](https://www.marketwatch.com/investing/stock/PEP?mod=refsymb_mw) [**BA-3.33%** ](https://www.marketwatch.com/investing/stock/BA?mod=refsymb_mw) [**LB00-5.56%** ](https://www.marketwatch.com/investing/future/LB00?mod=refsymb_mw) [**ES00-0.15%** ](https://www.marketwatch.com/investing/future/ES00?mod=refsymb_mw) [**NQ000.04%** ](https://www.marketwatch.com/investing/future/NQ00?mod=refsymb_mw)[**TMUBMUSD10Y1.366%**](https://www.marketwatch.com/investing/bond/TMUBMUSD10Y?countryCode=BX&mod=refsymb_mw) [**CL.10.09%** ](https://www.marketwatch.com/investing/future/CL.1?mod=refsymb_mw)

Earnings season is kicking off to incredible expectations. Analysts are expecting 64% growth in earnings per share from S&P 500 companies in the second quarter, according to data from FactSet.

To strategists at UBS, those lofty expectations still aren’t high enough. The bank said earnings may grow 80%. “The ebbing of the pandemic and the massive government response to it are the primary drivers of the profit surge,” said strategists led by David Lefkowitz, and they said it is illogical to expect results to decline sequentially from the first quarter.

[Source: FactSet, UBS, as of 12 July 2021](https://preview.redd.it/zzr7qc98kza71.png?width=1260&format=png&auto=webp&s=813adc2023d24afb7e4fb51677e954271832efc2)

Many consumers are itching for a sense of normalcy and household balance sheets are flush with cash suggesting spending has been — and will continue to be — solid,” said the UBS strategists. And while costs are clearly rising, they said, robust revenue is more than compensating. “Net profit margins should hit a new all-time high. Typically, margins take their cue from revenue growth. When revenue growth is strong, margins rise, even if costs are also rising,” they said.

The strategists lifted their S&P 500 [**SPX,** **-0.09%**](https://www.marketwatch.com/investing/index/SPX?mod=MW_story_quote) view for the end of the year to 4,500 from 4,400, and their June 2022 view to 4,650 from 4,550. The S&P 500 ended Monday at 4,384.63. “Our price targets assume a forward P/E of 20.5x — slightly below today’s 21.6x P/E. While valuations are high and remain above historical averages, they are reasonable in the context of very low interest rates. Valuations typically only contract when investors fear a pronounced growth slowdown is in the cards or central banks are making a policy error. Our outlook for healthy ISM \[Institute for Supply Management\] readings over the next year also suggests further upside for stocks,” they said.

[Source: FactSet, UBS, as of 12 July 2021](https://preview.redd.it/o0qt0j75lza71.png?width=1260&format=png&auto=webp&s=6698ccdc32ed343e2d9a395fc0c5a26ccb541472)

In terms of positioning, they continue to recommend a cyclical tilt. “We have a moderately preferred view on consumer discretionary, energy, financials, and industrials and a less preferred view on consumer staples and utilities. In our view, value stocks look more attractive than growth stocks,” they said. Growth stocks, they added, are at the largest premium to value since the dot-com bubble.

**CPI tops forecast**

Consumer prices jumped 0.9% in June, which was the largest one-month rise since June 2008 and faster than economists anticipated. The core measure of CPI also came in stronger than estimates. A [U.S. small-business optimism index](https://www.marketwatch.com/story/confidence-among-u-s-small-business-owners-picked-up-in-june-nfib-271626170423?mod=article_inline) improved in June.

China’s [export growth surged](https://www.marketwatch.com/story/china-export-growth-accelerated-in-june-271626147244?mod=article_inline) in June, rising 32% year-over-year, in a positive sign for world economic demand.

Heavyweight banks JPMorgan Chase [**JPM,** **-0.79%**](https://www.marketwatch.com/investing/stock/JPM?mod=MW_story_quote) and Goldman Sachs [**GS,** **0.06%**](https://www.marketwatch.com/investing/stock/GS?mod=MW_story_quote), and snacking giant PepsiCo [**PEP,** **1.79%**](https://www.marketwatch.com/investing/stock/PEP?mod=MW_story_quote), each beat [expectations on second-quarter earnings](https://www.marketwatch.com/story/pepsicos-stock-surges-toward-a-record-after-profit-revenue-rise-above-expectations-2021-07-13?mod=mw_latestnews&mod=article_inline).

Boeing [**BA,** **-3.33%**](https://www.marketwatch.com/investing/stock/BA?mod=MW_story_quote) lost ground after the aerospace giant said it has identified additional rework that is required on its undelivered 787s, delaying their delivery through the rest of 2021. 

The price of lumber futures [**LB00,** **-5.56%**](https://www.marketwatch.com/investing/future/LB00?mod=MW_story_quote) — the posterchild for runaway inflation as economies reopened — actually turned negative year-over-year on Monday.

St. Louis Federal Reserve President James Bullard told The Wall Street Journal that the time is right [to end the Fed’s stimulus efforts](https://www.marketwatch.com/story/st-louis-fed-president-bullard-says-time-is-right-for-a-fed-tapering-2021-07-13?mod=home-page&mod=article_inline), just a day after New York Fed President John Williams said such activity should continue.

**The markets**

U.S. stock futures [**ES00,** **-0.15%**](https://www.marketwatch.com/investing/future/ES00?mod=MW_story_quote) [**NQ00,** **0.04%**](https://www.marketwatch.com/investing/future/NQ00?mod=MW_story_quote) declined after the CPI report.

The yield on the 10-year Treasury [**TMUBMUSD10Y,** **1.366%**](https://www.marketwatch.com/investing/bond/TMUBMUSD10Y?countryCode=BX&mod=MW_story_quote) was 1.35%. Oil [**CL.1,** **0.09%**](https://www.marketwatch.com/investing/future/CL.1?mod=MW_story_quote) was trading just under $75 a barrel.
https://www.reddit.com/r/StockMarket/comments/ojga2z/analysts_expect_earnings_to_be_great_one_bank/