We've talked in recent days about the opportunity in bank stocks, and in commodities stocks.
The stock in these sectors have been dragged down, with the broad market, for non-fundamental reasons. If we step back, for some perspective, we came into the year knowing that a rising interest rate environment would not be friendly to the high valuation tech sector.
And it has been the ugly unwinding of irresponsible over-concentration in these big tech investments that has led to selling of even the most fundamentally sound stocks.
As such, we've been given an opportunity to buy good stocks at a discount. As we've discussed, for the banks, rising interest rates are fueling explosive net interest income growth. For commodities, the "clean" energy agenda and pandemic-driven supply disruptions have combined to leave us with structural deficits. That has led to higher selling prices, and widening profit margins.
With this in mind, according to a Bank of America survey this week, global profit optimism is at record lows. That sets up for positive surprises (which is good for stocks). So, how is Q2 earnings season shaping up? As of yesterday's close, 81% of companies that have reported have beat earnings estimates.
Add to this, if we look at the chart of the S&P 500, coming off of the worst first half in more than 50 years, you can see we've retraced about a third of the gains from the pandemic lows.
