US | Q1 earnings: upward revisions continue for now

US earnings growth continues to surprise to the upside, with more cyclical sectors leading the way in the Q1 earnings season. This positive momentum supports our existing overweights on Financials, Materials and Industrials.

However, longer-term expectations appear overly optimistic. The bottom-up consensus points to an ongoing profit margin expansion over the next few years and we think this is unlikely against a backdrop of rising cost pressures and proposals for higher corporate tax rates.

We see scope for downward revisions to EPS forecasts as attention turns towards 2022 later this year, and this could prove a headwind for US equities in the context of elevated valuation multiples.