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With stocks touching all-time highs, Wall Street believes there’s a new rally in the making

April 7, 2021, 9:08 AM UTC

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Good morning.

U.S. futures are slightly higher ahead of the release of the latest FOMC minutes. Elsewhere, bullish sentiment abounds. In an investor note this morning UBS CIO Mark Haefele says he sees further upside to the S&P 500 now that it’s topped 4,000. That backs up what Lindsey Bell at Ally Invest told CNBC yesterday: “There are lots of reasons to be excited about the months ahead.”

One reason for optimism is the upcoming earnings season, which kicks off next week. In today’s essay, I tell you what to look for.

But first, let’s see what else is moving markets.

Markets update

Asia

  • The major Asia indexes are mixed in afternoon trading. The Hang Seng and Shanghai Composite are back trading with Hong Kong stocks down 0.9%.
  • Shares in Toshiba were up a whopping 18% in Tokyo after the Japanese conglomerate revealed it’s mulling a takeover by PE giant CVC Capital Partners.
  • It’s hard to find any PSEI bulls out there these days. The Philippine Stock Exchange Index is Asia-Pac’s worst-performer, tumbling 7.7% so far in 2021, and analysts warn the worst is yet to come.

Europe

  • The European bourses were a touch higher, with London’s FTSE up 0.3% at the open, before climbing.
  • Credit Suisse underperformed its banking peers on Tuesday, and shares are down again today as investors mull the latest crisis slamming the Swiss lender.
  • European officials are suddenly feeling more optimistic that they can win over their trading partners, including the United States, on a global tax agreement, which would hit squarely American tech giants.

U.S.

  • U.S. futures are flat again this morning, but are trading off their lows. That’s after the Big Three exchanges closed a touch lower on Tuesday, despite Treasury yields tumbling.
  • The Biden infrastructure plan is fairly popular with everyday Americans, and the C-suite, too, apparently. Amazon founder Jeff Bezos says he’s behind the multi-trillion dollar fiscal spending plan, even if it means the corporate tax rate must be raised to pay for it.

Elsewhere

  • Gold is down, trading below $1,740/ounce.
  • The dollar is up.
  • Crude is down with Brent trading below $63/barrel.
  • Bitcoin is fairly flat, below $58,000.

***

Earnings season: a preview

As CFOs sometimes lament, earnings season never really ends. And, sure enough, the big banks—JPMorgan Chase, Bank of America, Wells Fargo and Goldman Sachs—next week will deliver their Q1 reports, unofficially kicking off the latest round.

The theme of this upcoming season will be revisions, revisions, revisions. The good kind. According to John Butters, senior earnings analyst at FactSet, the next round of results will be stellar.

FactSet calculates an estimated Q1 earnings growth rate for the S&P at 23.3%. If that were to stand, it would be the best quarter for bottom-line growth since Q3, 2018 (a 26.1% rate).

BofA Securities is slightly more bullish (based on a tally of investment-grade S&P 500 firms). It sees year-on-year earnings growth for IG issuers hitting nearly 25% this quarter, and 45% next quarter.

The outlook is pretty rosy, too. According to FactSet, there are a record-number of S&P companies—60 in all—that have reported positive EPS and sales guidance for the current year, the highest number in 15 years. Tech companies lead the way.

Now, even if corporates deliver on their knock-out earnings promises, it won’t silence the earnings doves who continue to question sky-high valuations.

But a strong batch of corporate results could at least focus market chatter on company performance, and, mute—even if only temporarily—the narrative that the fate of stocks is ultimately tied to something that’s largely beyond companies’ control: turbulent bond yields.

And, the best thing about earnings season? Even if it disappoints, there’s another one right around the corner.

***

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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Today's reads

Mitch McConnell to Corporate America: butt out. If you think the C-Suite is verging a lot into politics these days, you're not alone. And that brings us this gem, courtesy of Mitch McConnell: “My warning to corporate America is to stay out of politics," the Senate Minority Leader declared on Tuesday. A moment later, he clarified: "I’m not talking about political contributions.” 💰💰💰

Paycom the man. In the ranks of the most richly rewarded CEOs in the S&P 500, there's a new name. It's Chad Richison, founder and chief exec at payroll processing firm Paycom. He hit the jackpot last year, awarded $211 million in total compensation as the share price has been on a tear.

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