Original title: The second quarter report of the US stock market hits this weekGoldman SachsHow to score this answer sheet
News from the Financial Associated Press (Shanghai, editor Hu Jiarong),July 13,JPMorgan, Goldman Sachs will release its earnings report, officially kicking off the second quarter earnings season.
The market generally predicts that the earnings per share (EPS) of the S&P 500 constituent stocks in the second quarter increased by 61% over the same period last year, while its sales revenue and gross profit margin (Margin) increased by 22% and 256 basis points, respectively. Industrial cyclical stocks, consumer discretionary, and metal stocks are expected to become the main sectors leading the growth of earnings per share in the S&P 500 Index.
In the second quarter of 2020, the average transaction price of Brent crude oil was $33/barrel, and energy companies experienced a net loss. However, in the second quarter of this year, the average oil price has risen to US$69 per barrel, and energy companies are expected to return to profitability.
Goldman Sachs predicts that financial stocks will become one of the main driving forces for the EPS growth of the S&P 500 Index. In the first quarter of this year, financial stocks contributed $3 out of the $9 earnings per share of S&P 500 constituent stocks higher than market expectations. In the second quarter, Goldman Sachs expects financial EPS to increase by 116% year-on-year, accounting for 25% of the S&P 500 EPS increase.
Following the strong growth in the first quarter of 2020 and 2021, US capital market activity has returned to normal. However, the continuous release of large amounts of funds will continue to boost the banks’ EPS in the third quarter, and may increase the proportion of banks’ EPS to 18% by the end of this year.
Frankly speaking, to a large extent, the EPS of constituent stocks rose in the second quarter, and the reason behind it may be driven by the base effect, that is, the low base in the same period last year.
The 5 largest stocks in the S&P 500 (Facebook, Amazon, apple, Microsoft, Google) Occupies a total of 22% of the market capitalization, and 14% of the S&P 500 constituent stocks’ earnings per share in the second quarter of 2021. Despite the severe economic contraction in the second quarter of last year, the earnings per share of these five companies actually increased by 38% on average, and the average increase in profits will still reach 52%.
David Kostin, chief equity strategist at Goldman Sachs, predicts that the S&P 500 will close at 4,300 points this year, slightly lower than Friday’s close.
At the same time he also asked three questions
1. Under the pressure of external costs, how can companies maintain profit margins?
2. In the balance sheet rebalancing, how will companies prioritize cash expenditures?
3. How does the current uncertainty of monetary policy affect the market?
Under external cost pressure, how can companies maintain profit margins?
The profit margin of the S&P 500 Index was 11.9% in 2021Q1, setting a historical record. But investors are more concerned about future profits. Because of global shipping difficulties, raw material inflation, and severe shortages of labor and semiconductors, the production costs of companies continue to increase. During the conference call in the first quarter, many companies began to discuss rising raw material prices, and this trend may continue in the second quarter.
Investors began to invest in profitable and attractive companies. Goldman Sachs said that profit margins are one of the important drivers of company valuation.
Uncertain monetary policy affects the market
The S&P 500 cash/asset ratio’s overall ratio and median value have both rebounded and are currently at a record level, driven in part by the record corporate bond and stock issuances in the past 18 months.
Although the leverage ratio of the S&P 500 is still higher than historical levels, as corporate profits begin to improve, the leverage ratio has been declining. Information technology and consumer discretionary sectors hold the highest cash/asset ratio of any industry, accounting for 43% of the total cash in the Standard & Poor’s 500 Index (excluding financial stocks).
Goldman Sachs predicts that 2021 capital expenditures will account for a large proportion of the cash expenditures of S&P 500 constituent stocks, but it is also a year of rapid growth in cash mergers and acquisitions and stock repurchases.
The World Bank predicts that after a 10% drop in cash expenditures in 2020, high cash balances, low returns, and strong economic and profit growth will jointly drive global cash expenditures to grow by 19% (US$2.8 trillion) in 2021 and increase by 20226 % (3 trillion U.S. dollars).
Data from the World Bank’s repurchase department shows that US companies have approved $627 billion in repurchase so far this year, which is also the most since 2018.
In 2021, development investments (capital expenditures, R&D and cash mergers and acquisitions) should account for 55% of total cash expenditures. High cash reserves and record repurchase authorizations have led to a 35% increase in the number of repurchases.
Goldman Sachs listed some stocks with higher-than-average net gross profits for optimistic trading varieties, and these stocks have achieved a gross profit growth rate of 50% in 2020, and the growth rate is still 50% in the next two years. These individual stocks are in consumption, communications, industry, medical and health, information services and materials.
Goldman Sachs predicts that the median net profit margin of the companies on these lists in 2021 is 26% (the S&P 500 median is 13%). By 2022, profit margins will increase by 306 basis points (with a median of 156 basis points).
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