After gaining 28% in a straight line from the 10% correction low in late October to the most recent all-time high, it’s understandable that the market has been consolidating a bit. So far, the drawdown has been 6% over three weeks. Remember, the market spends more than half the time in a drawdown of at least 5%. Volatility is the price investors pay for the compounding magic to work.
And with valuations high, the baton needs to be passed to earnings growth, which seems to be happening:
💠 With 401 companies reporting, 79% have beaten estimates by an average of 8.7%.
💠 The year-over-year growth rate for Q1 EPS has now bounced 600 bps, from +1% at the beginning of earnings seasons to now 7. Q1 is following in the footsteps of Q4, which was a sequential improvement over Q3. This is what we need to see, and we are getting it.
💠 The calendar year estimate is holding in nicely at a 9% growth rate, with no signs of succumbing to the usual downward drift.
💠 Revenues are also holding up, with a rising share being spent on capex. Dividends are growing as well, but share buybacks remain muted at 5% of revenues.