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Despite a 2-month rally in U.S. equities that saw the S&P 500 surge 17% off its June low, RBC’s Lori Calvasina, Head of U.S. Equity Strategy, still doesn’t see enough evidence to call an end to the ongoing rebound in equities.
RBC’s deep dive analysis of the percent of sell-side EPS estimate revisions to the upside for the S&P 500 on a combination of FY1 and FY2 EPS since the last 1990s, showed it is possible that stocks print major bottoms before EPS forecasts were fully cut.
“While we remain concerned that the need to pull down 2022 and 2023 EPS forecasts will contribute to volatility in the stock market in coming months, this exercise leaves us more concerned about another swing lower in the S&P 500 that merely gives back some of the recent gains or retests the June low, and reduces our concerns about establishing a new low,” Calvasina said in a client note.
The strategist tells investors who feel the S&P 500 is expensive that they can still find bargains in the Small Cap space. On the other hand, Calvasina notes that Nasdaq is starting to look overbought in the futures market.
“Positioning in S&P 500, R2000, and Dow contracts are still in the early days of their recoveries, a positive signal,” the RBC strategist concluded.
