Hello,

 

The first six months of 2021 has certainly been interesting. We have experienced three different markets already this year. First, we saw a correction in growth stocks that was caused by spike in interest rates. Second, we had a cyclical rally and everything related to commodities such as lumber, copper, oil and gas, etc. went up. Now we are experiencing volatility because of the rise in Delta variant cases. Just to make things more interesting, US corporate earnings season is set to start next week.

 

Record Q2 earnings projected:

 

If the Q2 earnings consensus forecast of +69.2% increase is realized, it will be the highest year-over-year increase since Q4 2009. It should be noted that this increase is the product of weak 2020 earnings as a result of the pandemic. However, if earnings come in as expected, earnings on a trailing 12-month basis will be equivalent to $169 for the S&P 500. This would be the best number ever surpassing the $157 of Q4 2019.

 

So far, 100 companies have issued guidance for the quarter and 66 of them have guided to the upside. If this ratio continues, it will be the largest number of S&P 500 constituents to issue positive guidance since 2006. The companies that stand to have the highest growth rates for the quarter are likely the cyclicals such as industrials, discretionary, materials and financials, which have benefited from the reopening.

 

In our notes over the past few weeks we have discussed commodities and our bullish sentiment towards them. It should be noted that every sector in the S&P 500 is projected to have significant sales growth however, Energy and Materials are expected to grow by 89.5% and 33.1% respectively. If these numbers materialize it should make for an interesting third-quarter. Especially since many institutions are underweight energy because of ESG concerns.

 

I have also included a piece from our CIBC Economics Team entitled "Should we fret the Canadian economy's recent reliance on housing? "

 

As always please feel free to contact us at any time.

 

Have a great weekend.

 

Milan