Stock earnings grow in “fundamental sweet spot”

Where’s your fundamental sweet spot?

Canaccord Genuity U.S. Portfolio Strategist Tony Dwyer provided an update on the progress of Q4/12 EPS, the fundamental “sweet spot,” and the tactical condition of the market.

With 14% of SPX reported at the time of his publication, 62% have surpassed reduced expectations by an average of 5%. Bottom-up consensus is currently looking for 2.6% growth versus a year ago. 68% of those reporting revenues have topped expectations, reinforcing his expectations for EPS reacceleration through 2013.

Dwyer’s favored measures of Consumer Sentiment, Employment and Housing continue to trend better from historically weak levels. He refers to this as the “sweet spot” because it means the trend suggests better data coming, but not strong enough releases to bring in fear of the Fed.

Additionally, money availability continues to improve. Dwyer measures this through the strong demand and tone of Corporate Credit and Commercial & Industrial Bank Lending metrics. He remains steadfastly bullish because with the backdrop of 1) low inflation, 2) ultra-easy global monetary policy, 3) improving money availability, 4) steady economic growth, and 5) record earnings, he believes the market is far too inexpensive.

While S&P 500 (SPX) made a new recovery high and remains in a well-defined uptrend Dwyer chooses to focus more on the intermediate-term opportunity rather than the chance of a temporary correction given the strength of the intermediate-term uptrend, especially given trend in volatility. All in, while there could be a brief period of consolidation associated with a near term tactical overbought condition, his 2013 SPX target remains 1,650.

SPDR S&P 500 ETF (SPY : NYSE : US$149.37), Net Change: 0.24, % Change: 0.16%, Volume: 102,211,979

About the Author

Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx.

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