Axios Markets: Here comes the blowout

Plus: A possible corporate tax rate compromise | Monday, April 19, 2021

Open in app View in browser   Presented By M1 Finance   Axios Markets By Dion Rabouin ·Apr 19, 2021 Good morning! Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 1,047 words, 4 minutes.) 🚨 Situational Awareness: Webster Bank and Sterling Bank announced a merger that will unite the companies to form a $10.3 billion "powerhouse Northeast player" with $63 billion in assets and $52 billion in deposits. 🎙 "A man who dares to waste one hour of time has not discovered the value of life." - See who said it and why it matters at the bottom.     1 big thing: 2021's expected earnings blowout begins Photo: Spencer Platt/Getty Images   First-quarter earnings so far have been very strong, outpacing even the rosy expectations from Wall Street and that's a trend that's expected to continue for all of 2021. S&P 500 companies are on pace for one of the best quarters of positive earnings surprises on record, according to FactSet. Why it matters: The results show that not only has the earnings recession ended for U.S. companies, but firms are performing better than expected and the economy may be justifying all the hype. By the numbers: After a strong week of bank earnings last week, 81% of S&P 500 companies have reported a positive EPS surprise for Q1, on pace to tie the mark for the second-highest percentage of positive EPS surprises since FactSet started tracking the data in 2008. The blended earnings growth rate for Q1 is 30.2%, which if it stands would mark the highest year-over-year earnings growth for the S&P in more than a decade (34% in Q3 2010). The lofty numbers have jumped in a short time, as the estimated earnings growth rate for Q1 2021 was 23.8% as recently as March 31. Last week's reports were dominated by the big banks, with JPMorgan Chase, Goldman Sachs and Morgan Stanley all reporting record earnings. The big picture: The big numbers in the first quarter are not expected to be an aberration. Analysts also predict double-digit earnings growth for the remaining three quarters of 2021 thanks to a combination of higher earnings and an easier comparison to 2020 as a result of the COVID-19-pandemic. Goldman Sachs' derivatives research team said in a note to clients that options markets are pointing to broad upside moves for stocks during earnings season. Yes, but: Only 9% of S&P 500 companies have reported earnings, and those have largely been in the banking sector, which has gotten a major boost from lower-than-expected loan losses. Banks delivered a blowout year-over-year earnings growth rate of 248%. What's next: This week will bring earnings reports from dozens of big names including Coca-Cola, Johnson & Johnson, United Airlines, Intel and Netflix, with the Dow and S&P starting the week at record highs.     2. Catch up quick The Bank of England and the U.K. Treasury announced the joint creation of a Central Bank Digital Currency Taskforce to "coordinate the exploration of a potential UK CBDC." (Press release) Following Coinbase's debut on public markets last week cryptocurrencies have plunged, with bitcoin falling by the most since February. (Bloomberg) The U.S. Consumer Product Safety Commission urged people with kids and pets to "immediately" stop using a treadmill made by Peloton after a child died and dozens of others were injured. (Axios) The U.S. and Iran edged closer to reviving the 2015 nuclear deal abandoned by former President Donald Trump as talks in Vienna have been called "constructive" by Washington. (Bloomberg) "For the internationalization of the renminbi, we have said many times that it's a natural process, and our goal is not to replace the U.S. dollar or other international currencies," People's Bank of China Deputy Governor Li Bo said. "I think our goal is to allow the market to choose, to facilitate international trade and investment." (Al Jazeera)     3. The state worst hit by the pandemic Data: Hamilton Place Strategies; Chart: Will Chase/Axios Axios' Felix Salmon writes: When the coronavirus pandemic hit, the job facing governments was to save lives and save jobs. Very few states did well on both measures, while New York, almost uniquely, did particularly badly on both. Why it matters: The jury is still out on whether there was a trade-off between the dual imperatives; a new analysis from Hamilton Place Strategies shows no clear correlation between the two. Read more.     A message from M1 Finance How to invest with purpose     Experienced investors know that how you invest is just as important as what you invest in. The M1 Finance Super App™ offers endless customization and automation, making it easy to build a one-of-a-kind strategy that works for your personal investing goals. Earn up to $4,000 when you switch to M1.     4. Senate Democrats settling on 25% corporate tax rate Axios' Hans Nichols writes: The universe of Democratic senators concerned about raising the corporate tax rate to 28% is broader than Sen. Joe Manchin, and the rate will likely land at 25%, parties close to the discussion tell Axios. Why it matters: While increasing the rate from 21% to 25% would raise about $600 billion over 15 years, it would leave President Biden well short of paying for his proposed $2.25 trillion, eight-year infrastructure package. Biden's plan to increase the rate U.S. multinationals pay on their foreign earnings from 10.5% to 21% is less controversial and stands a better chance of remaining intact in the final legislation. That would raise an additional $700 billion. But corporate lobbying groups are preparing for a long-term battle over both rates. The Business Roundtable launched an advertising campaign last week and released a survey of 178 CEOs discussing how the proposed changes would affect their company's competitiveness. The big picture: The White House hasn't publicly backed away from the president's proposed 28% rate but indicated it's willing to find a compromise to pay for his spending plans. Democrats close to the White House expect Biden will accept 25% and pocket it as a political win. President Trump lowered the rate from 35% to 21%. Driving the news: A collection of 10 senators from both parties — the so-called Group of 20 — is working to find a compromise on what to include in an initial infrastructure package and how to pay for it. "If we come together in a bipartisan way to pass that $800 billion hard infrastructure bill that you were talking about, that I've been urging, then we show our people that we can solve their problems," Sen. Chris Coons (D-Del.) said on "Fox News Sunday." Sen. Susan Collins (R-Maine) has crystalized the G-20's challenge by breaking it down into three issues: scope, size and pay-fors. "It is much easier to come up with appropriate pay-fors and bipartisan agreement if we're talking about a more focused package that truly is centered on infrastructure," she said last Thursday. Between the lines: While Manchin (D-W.Va.) has made clear his preference for a 25% rate, he's far from alone. Democrats who've privately hinted they may be uncomfortable with going to 28% include Sens. Tim Kaine and Mark Warner of Virginia, Kyrsten Sinema of Arizona and Jon Tester of Montana. The Democratic dynamic is similar to the one about increasing the minimum wage to $15 an hour, which was ultimately rejected by eight Senate Democrats. Some of them talked about something closer to $11. Go deeper: There's similar sentiment in the House, where moderates also are opposed to increasing taxes too much, Axios had reported. "I think that 25% is fine," Rep. Scott Peters (D-Calif.) said. Be smart: Democrats view the debate about the corporate rate as a litmus test for Republican interest in bipartisanship during the Biden era. If they can find a middle ground, they hope to work on other issues. Many are skeptical, though, even as Republicans say infrastructure spending is badly needed. A failure to reach consensus here would only fuel calls to use budget reconciliation to ram through other spending plans.     A message from M1 Finance How modern investors build portfolios     M1 Finance seeks to put smart advanced tools in the hands of capable investors. What this means: With endless customization and automation at your fingertips, you'll have everything you need to easily execute your one-of-a-kind strategy. Earn up to $4,000 when you switch to M1.   Thanks for reading! Quote: "A man who dares to waste one hour of time has not discovered the value of life." Why it matters: On April 19, 1882, scientist Charles Darwin died. The author of the theory of evolution, Darwin established that all species of life have descended over time from common ancestors. This newsletter is written in Smart Brevity®. Learn how your team can communicate in the same smart, clear style with Axios HQ.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Suite 1300, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: