Earnings Momentum is Accelerating and Will Send Stocks Surging

In challenging times, if you wait for the “all clear” you often miss out.

The April 7 Iran ceasefire helped the S&P 500 erase its 10% correction since bottoming on March 30.

If you missed that move, don’t fret.

Earnings momentum is accelerating and will send stocks surging.

Let’s rewind the tape for a moment. On March 23 we told you High Oil & Surging Volatility Will Not Derail the Stock Market.

That’s the case today as stocks always look ahead.

While the path to peace won’t be linear, the worst is likely over.

Today, we’re laying out 3 bullish narratives that benefit equities... paving the way for fresh all-time highs.

First, we’ll tackle the path of rate cuts.

Then we’ll size up the earnings picture and attractive valuations.

We’ll wrap up with an all-star list of stocks to play for the market rebound.

Stocks Outperform When Fed Restarts Rate Cuts

Reason #1 to be bullish is that rate cuts have been priced out of the market. High commodity prices have made investors worried that the Fed may hike rates to control inflation.

If cuts occur, it’ll be a positive macro catalyst for stocks.

Here’s why we think easing is likely later this year.

Incoming Fed chairman Kevin Warsh has a much more dovish bias than his predecessor and will cut interest rates in the second half of the year as prices cool in the war’s wake.

The Fed hasn’t cut rates since last December. Stocks historically do very well when rate cuts resume after a six-month pause, posting a median 13.7% gain over the following year:

It’s not just rates that have us bullish.

Rarely has earnings growth been this strong.

Earnings Momentum is Accelerating and Will Send Stocks Surging

Here’s reason #2 to be bullish: Earnings momentum is accelerating.

Earnings growth has rarely been stronger. S&P 500 profits are forecasted to grow 23% over the next 12 months.

That’s the fastest rate of growth in five years and dwarfs the 7.4% average annual EPS growth over the last 20 years:

Momentum is widespread across all cyclical sectors with the Mag 7 and AI infrastructure plays (semis, optics, power) contributing most to overall index level EPS momentum (chart).

Remember that energy, materials and utilities, while doing very well, comprise less than 10% of the S&P combined, limiting their overall index level earnings impact.

Having Tech join the party means that stocks have a lot of upside ahead:

Let’s tally it up. We have potential Fed easing and accelerating earnings growth.

Now let’s tackle attractive valuations.

Valuation Reset Creates Fresh Opportunities in Technology Stocks 

Here’s reason #3 to be bullish: Technology valuations are attractive.

While the S&P 500 declined 10% from its January peak through March 30, the average S&P constituent fell 18%.

And since earnings revisions have remained strong, the equity drawdown has fueled a notable valuation reset.

Note technology and communications, where their historical valuation premium to the market has shrunk sharply.

Any return by these growth-heavy groups to their historical rich valuations will send bears back into hibernation:

There’s real money to be made right now.

Let’s give you an actionable portfolio allocation.

What This Means for Your Portfolio

HALO (heavy asset, low obsolescence) stocks are still in charge, but leadership is shifting from energy as the geopolitical fog clears towards AI infrastructure plays in the materials, industrials, tech and utilities sectors.

MoneyFlows sector rankings reflect this with HALO-heavy utilities, materials and industrials sectors leading while energy is still in the top spot but by a much narrower margin than in March (chart).

Note huge semi and Mag 7 earnings momentum has helped technology catch a bid and move up in the rankings as have financials, while discretionary and health care remain weak:

Stocks move fast. These rotations have caught many off guard.

MoneyFlows was quick to these shifts as institutional investors often move EARLY.

That’s how you outperform!

Today’s equity list focuses on our top 20 AI infrastructure outliers in HALO sectors including semiconductors, power, and infrastructure plays. Inflows have been constant, powering many of these names to one record high after another.

Our data is built to find the outlier stocks ahead of the crowd.

To get access and make even more from this call to action, sign up for a PRO membership.

You’ll get our proprietary indicators and learn how our unique money flow approach finds outlier stocks early. Give it a shot!

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Be early next time.

Go with the flows!

HALO continues to work but leadership is shifting from energy to AI infrastructure.

Below are the 20 strongest stocks with big money activity: