Market may be signaling the consumer is getting winded, economist says

The first quarter earnings season is nearing its end, with nearly 80% of S&P 500 (^GSPC) companies having reported their financial results. According to data from FactSet, first quarter earnings are on track for a 5% year-over-year growth rate. Annex Wealth Management Chief Economist and Strategist Brian Jacobsen joins the Morning Brief to shed light on the implications of this earnings season and its impact on market outlooks.
Jacobsen notes that earnings season has been "better than a lot of people expected," but he also highlights a persistent "divergence." Companies in the tech and cyclical sectors are "outperforming retail," with the Consumer Discretionary Select Sector SPDR Fund (XLY) lagging behind the broader market. This divergence has led Jacobsen to suggest that the market may be signaling that "the consumer is getting a little winded here."
Jacobsen observes that companies posting earnings surprises are rewarded less due to their guidance "over the longer term." While quarterly reports focus on "what they've done lately," markets focus more on what companies can achieve in the long run. Consequently, if a company beats earnings expectations but delivers weak guidance, often "the stocks get punished."
On the valuation front, Jacobsen advises investors to compare earnings to the 10-year yield to determine whether current valuations are sustainable.
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