Stock futures opened slightly lower Thursday evening after a mixed session on Wall Street.
Both the S&P 500 and Nasdaq ended the regular trading day at fresh record closing highs as tech stocks outperformed. The Dow ended just a tick below its own recent record closing level. Shares of Dow component Disney (DIS) increased about 2% in late trading after the company posted a surprise quarterly profit and grew Disney+ streaming subscribers more than expected, as the company aggressively builds out its direct-to-consumer business.
Over the past couple weeks, investors have absorbed a bevy of much stronger than expected earnings results, with corporate profits rebounding much faster than expected despite the ongoing pandemic. With more than 80% of companies now having reported fourth-quarter results, S&P 500 earnings per share (EPS) have topped estimates by 16.5% in aggregate, and bounced back above pre-COVID levels, according to an analysis by Credit Suisse analyst Jonathan Golub.
“Prompt and generous government action mitigated the [virus-related] damage, leading to outsized economic and earnings surprises,” Golub said. “The earnings recovery has been substantially more robust than we could have imagined when the pandemic first took hold.”
Stocks have continued to set fresh record highs against this backdrop, and as fiscal and monetary policy support remain robust. But as investors become accustomed to firming corporate performance, companies may need to top even greater expectations in order to be rewarded. This could in turn put some pressure on the broader market in the near-term, and warrant more astute assessments of individual stocks, according to some strategists.
“It is no secret that S&P 500 performance has been quite strong over the past few calendar years, driven primarily through valuation expansion. However, with the index P/E [price-to-earnings ratio] recently eclipsing its previous dot-com high, we believe that valuation multiples will begin to compress in the coming months,” BMO Capital Markets strategist Brian Belski wrote in a note Thursday. “According to our work, strong EPS growth will be required for the next leg higher. Fortunately, that is precisely what current expectations are forecasting. However, we also found that these sorts of ‘EPS-driven’ periods tend to be more challenging from an investment strategy standpoint.”
“We believe that the ‘easy money days’ are over for the time being and investors will need to tighten up their focus by evaluating the merits of individual stocks, as opposed to chasing the momentum-laden strategies that have recently dominated the investment landscape,” he added.
6:03 p.m. ET Thursday: Stock futures tick higher
Here’s where markets were trading Thursday as overnight trading kicked off:
S&P 500 futures (ES=F): 3,904.50, down 7.5 points or 0.19%
Dow futures (YM=F): 31,327.00, down 32 points or 0.1%
Nasdaq futures (NQ=F): 13,703.5, down 25.5 points or 0.19%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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