It’s ‘too soon’ to declare peak EPS: Investment strategist
Investors should be wary of predicting a decline in earnings, BMO Capital Markets Chief Investment Strategist Brian Belski said this week, even as some analysts worry that the market's rebound could be showing signs of wear.
Despite high earnings per share (EPS) growth throughout 2021, Belski does not believe the data supports a dropoff or turning point in the near future, he told Yahoo Finance Live in an interview on Wednesday.
First, Belski says, analysts have been too pessimistic with earnings projections. “The secular trend of analysts really being too negative on earnings [is] really setting [them] up to under promise and over deliver,” Belski said.
Additionally, the reopening of the economy may give rise to further difficulties in predicting peak earnings.
“The economy is just now opening up. And we think that numbers, when you add all that up, could be too low,” he said. “So this whole notion of really satisfying yourself with looking at consensus numbers may be a little too early.”
Q1 earnings in 2021 far exceeded expectations, justifying optimistic economic outlooks. The S&P 500 (^GSPC) was trading less than 1% off its all-time highs at the end of May. Still, Belski says, “it's way too soon to say that earnings have peaked and that the markets are changing.”
Recent market frenzies driven by retail investors have also been causes for concern with regard to market stability. But the meteoric rise of AMC (AMC) and other meme stocks will have little effect on market fundamentals, Belski says.
”Just like bitcoin (BTC-USD) or just like Tesla (TSLA), I think they're more sideshows, quite frankly,” Belski said. “I think, too, once and if and when we start getting back to work, we'll stop hearing about this stuff in the meme stocks … in terms of its importance with respect to fundamentals, it's zero.”
“This is going to be a fundamental-driven market,” Belski said. “And I think that's very positive.”