Sizzling Stock Market Sets High Bar for Earnings Season – The Wall Street Journal

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The stock market is running hot entering first-quarter earnings season.

A formidable rally has propelled the S&P 500 up 9.9% this year to 20 record closes, keeping stock valuations at historic highs. Some investors, though, say shares may have more room to run as the rollout of Covid-19 vaccines and bountiful government spending strengthen the outlook for corporate profits.

Earnings season kicks off in earnest this week, with results from America’s big banks—including JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co—and companies ranging from Delta Air Lines Inc. to PepsiCo Inc. and UnitedHealth Group Inc.

Investors will be watching for signs of confidence from executives that customer demand will keep rising and cost increases can be managed to help ease their concerns that stocks are looking expensive.

The S&P 500 traded Thursday at 22.6 times its projected earnings over the next 12 months, above the five-year average of 18.14, according to FactSet. Paying up, even for shares of high-quality companies, raises the prospect of muted future returns for shareholders.

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