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A Bank of America equity strategist has reflected on the Q2 earnings season so far.
The strategist took note of a “solid” 3% EPS beat at $56.87, which compares to the consensus of $55.35.
“Overall, results were better than feared, especially with more above-consensus guidance than below, which was the biggest positive surprise,” she told clients in a note.
The quant warned investors against betting that June was the big low for stocks. She reminds that bear markets always ended after the Fed cut, which is not happening before 2023.
“During the prior five recessions, the S&P 500 bottomed after estimates were revised down, except in 1990 when fwd EPS remained flat when the market bottomed. But today, estimate cuts are just starting and fwd EPS is still up 7% since the market peak. Our bull market signposts also indicate it’s premature to call a bottom: historical market bottoms were accompanied by over 80% of these indicators being triggered vs. just 30% currently.”
Although the consumer is being squeezed by high inflation, the strategist is positive about the fact that corporates are still spending big on Capex.
“Capex is usually pro-cyclical, but may be more necessary amid supply chain friction, re-shoring, and a tight labor market conditions. We expect capex to hold up better than in prior recessions. This is positive for the US economy, which has not enjoyed a real capex cycle in more than a decade (and for US small caps), but also represents a drag on already slowing FCF for multinationals and labor intensive companies,” the quant concluded.
