Last week, the Biden administration unveiled the details of its massive, 2-phase infrastructure package. The first phase will include $2.25 trillion in infrastructure spending, primarily focusing on traditional infrastructure, R&D, the electric grid, high-speed broadband, and clean drinking water. The proposal also has an additional $400 billion in clean energy tax credits that are not included in the headline total. Phase 2, which is expected to be detailed later this month, could bring the overall spend to $3-4 trillion. If this initial bill is passed, we will likely see U.S. economic growth remain above trend for longer than previously expected which in turn should provide a boost to corporate revenues. While some of this robust top line growth should make its way into earnings, thereby helping to normalize valuations, higher corporate taxes are also on the horizon. An increase in the corporate tax rate from 21% to 28% would offset some of the benefits of stronger revenue growth and given that analysts are often slow to incorporate tax changes into their estimates, projections for 15% earnings growth in 2022 may be a bit of a stretch. Furthermore, as shown in this week’s chart, analysts tend to overestimate earnings until one quarter out, when predictions line up with actual results. As such, estimates will likely increase on the back of the proposed infrastructure package, but long-term investors may want to take these revisions with a grain of salt.
–JP Morgan
Happy Monday. Good Luck out there this week.
Global Spotlight
The IMF revises its economic projections upward. Finance ministers and central bank governors of the Bretton Woods institutions’ 190 member countries will meet virtually for their semiannual conference starting April 11, and have a full agenda that includes providing enough money to meet exceptional emergency needs created by the pandemic on top of revisions to the global macroeconomic outlook.
EU presidents in Turkey. European Council President Charles Michel and the European Commission President Ursula von der Leyen will meet with Turkish President Recep Tayyip Erdogan in Turkey on April 6 in the latest step in the rapprochement between Brussels and Ankara.
The Japanese premier visits the United States. Japanese Prime Minister Yoshihide Suga will meet with U.S. President Joe Biden on April 9, marking the first in-person meeting between a foreign leader and Biden since the latter entered office.
The EU sanctions Iranian officials. EU officials are preparing sanctions on eight Iranian officials and three Iranian entities in connection to crackdowns on November 2019 protests; the official announcement is expected next week, after the Easter holiday.
Coalition-building in Israel. Israeli President Reuven Rivlin is due April 7 to choose the first candidate to begin formal negotiations to form a government after March 23’s inconclusive election.
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Weeks Numbers
Review Last weeks numbers here.
The S&P 500 rose three out of the last five days and closed the last business day of the week (markets are closed tomorrow) at another record high, this time over 4K – 4019.87. The index is up 1.18% from yesterday and is up 7% YTD. Jill Mislinski.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 21Q1 earnings are expected to be 24.2% from 20Q1. Excluding the energy sector, the earnings growth estimate is 25.0%.
- Of the 16 companies in the S&P 500 that have reported earnings to date for 21Q1, 87.5% have reported earnings above analyst expectations. This compares to a long-term average of 65% and prior four quarter average of 76%.
- 21Q1 revenue is expected to be 8.5% from 20Q1. Excluding the energy sector, the growth estimate is 10.0%.
- During the week of April 5, five S&P 500 companies are expected to report quarterly earnings.
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