Jurrien Timmer, Director of Global Macro at Fidelity, believes the market is almost in a new bull run and said that the earnings outlook is improving. Indeed, the index officially entered a bull market on June 8, surging more than 20% since its October 2022 lows.
“Yes, the S&P 500 is up 20% from the low but that’s an arbitrary measure that so far only applies to the cap-weighted index. To be in a confirmed bull market we need to see three things: a path to an earnings recovery, a path to the end of the rate cycle, and better market breadth. The latter, of course, is very much tied to the first two,” he said in a tweet.
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Timmer’s remarks come at a time when the general trending opinion among experts is that the market may be a bit overheated with the recent AI-optimism-led rally. For instance, Foord Asset Management portfolio manager, Brian Arcese said inflation is still going to be persistent and that the markets are probably getting a bit ahead of themselves.
Indeed, much of the rally in the S&P 500 this year has been driven by tech stocks. Stocks like NVIDIA Corporation (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) and Microsoft Corp (NASDAQ:MSFT) have registered significant gains since the start of 2023.
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The SPDR S&P 500 ETF Trust (NYSE:SPY) has gained 13.91% since the beginning of 2023 while the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) rose 36.30%, according to Benzinga Pro.
Earnings Outlook: Timmer explains that the earnings outlook is improving and the breadth of estimate revisions is getting better. The percentage of stocks in the S&P 500 with rising estimates from three months ago is 47%, up from 27%, he argued. “With inflation still at 5% in the US, the quality of those increasing estimates is less than the previous cycle, but still, it’s an improvement,” Timmer said in his tweet.
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The expert noted that the earnings picture is improving or at least is getting less bad and that the downside progression of 2023 calendar estimates has flattened out. “Just a few months ago, I figured that the 2023 consensus estimate was on its way to a 10% decline, but now we have gone from -5% to -4%,” he said.
