Investors don't understand impact of earnings on stocks: BMO's Belski

·2 min read

Bullish investors may be in luck for the next few months, a new BMO Capital Markets report, authored by Chief Investment Strategist Brian Belski, found.

BMO’s Investment Strategy expects the second half of 2021 to undergo continued growth, though at rates lower than the first half of the year. Overall, the report found, investors can expect “weaker gains than those exhibited in [the first half of 2021], along with more frequent bouts of volatility and price choppiness as the recovery matures and investors begin to digest the market implications of an earnings-driven environment,” he said.

Stocks have done quite well as of late, with the S&P 500 (^GSPC) and Nasdaq (^IXIC) both hitting record-highs Monday. This recent performance continues the general 2021 trend which has seen a rising stock market thrive.

Belski notes that though the gains have been impressive, there is still room to grow this year.

“Although some investors are suggesting this is ‘as good as it gets’ for U.S. stocks,” Belski said in the report, “We firmly believe there is still more room to run in the months ahead, with our S&P 500 year-end target price of 4,500 implying 5.5% upside from current levels.”

NEW YORK , NY - JUNE 02: Exterior view of the New York Stock Exchange and Wall St. as new company Organon start trading next thursday in New York on June 02 2021. Organon look to expand to provide treatments for other conditions unique to women, about 80% of the new company's revenues will come from outside the U.S (Photo by Kena Betancur/VIEWpress)
NEW YORK , NY - JUNE 02: Exterior view of the New York Stock Exchange and Wall St. as new company Organon start trading next thursday in New York on June 02 2021. Organon look to expand to provide treatments for other conditions unique to women, about 80% of the new company's revenues will come from outside the U.S (Photo by Kena Betancur/VIEWpress)

Earnings reports for the first half of 2021 “far exceeded” already elevated expectations, causing analysts to upwardly revise the PE target for the end of 2021.

“However,” Belski noted, “we anticipate the second half of the year will be more of a grind higher rather than a straight shot, with bouts of volatility and choppiness in between as the reopening/cyclical trade matures and investors begin to digest the implications of an earnings-driven market.”

For the next few months, investors will need to be more discerning as growth may be more limited, he said.

"The bottom line is that we believe plenty of opportunities still exist — but the 'easy money days' are likely done for the time being," Belski noted. "In other words, investors will need to focus on the merits of individual stocks/sectors/industries, as opposed to chasing market momentum, in order to generate outperformance, in our view."

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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