In the ongoing market tale of rising tides lift all boats, S&P earnings growth could determine whether stocks face smooth seas or turbulent waters into the end of fiscal 2023.
Chris Versace, portfolio manager of the Action Alerts PLUS investing club, said for markets to rally into the back half of the year, earnings growth will need to exceed expectations of 7%.
Translation? Even if you don’t own high profile S&P names including Nvidia (NVDA) -), or Tesla (TSLA) -), consider this your invitation to read the earnings releases.
FULL VIDEO TRANSCRIPT BELOW:
J.D. DURKIN: Dive into why you're closely watching S&P 500 earnings growth as earnings season, once again, kicks off?
CHRIS VERSACE: Sure. So we exited last week with the S&P 500 ever so close to its 52-week high market multiple of just over 20 times. So if we're that high, J.D. , the question is, can we get a lot more multiple expansion? Or in order to see significant upside from here, again, in the S&P 500, do we need to see earnings growth?
And I definitely think it's the latter. Here's the thing, though. The market already anticipates roughly 7% earnings growth in the second half of the year compared to the first. So in order to move demonstrably higher, we likely need to see something more than 7%, OK? So what this all means is the upcoming earnings season is going to be critical because companies will be guiding for the back half of the year.
So to kind of quickly sum it up, if we see earnings growth materializing for the second half of the year that looks better than 7%-- again, that which is expected-- we are likely to see from a fundamental perspective the market move higher. If, however, we see something below 7% looking likely, odds are the market's going to continue to be range bound through the back half of the year.
J.D. DURKIN: Chris, is there anything on that note that you would encourage members themselves to individually track and follow over the weeks and months ahead?
CHRIS VERSACE: We're going to be doing a pretty good job of tracking that. We try to talk about that several times a week both on Monday when we have a technical look at the S&P 500, but also on Friday’s roundup, where we kind of chart the moving expectations that are S&P 500 earnings growth. So I would say that those are two good places to look, as well as our conversations.
But if I had to say here's one great resource that you can look at on your own, I would say continue to watch the data from FactSet. That's the data that we watch.
