First-quarter earnings could show a lot of better-than-expected results.
There's a caveat, but here's the logic:
"The low bar is likely to be cleared," wrote LPL Financial's chief investment officer John Lynch, in reference to expected S&P 500 earnings for the first quarter of 2019, in a note out Friday.
Lynch noted that S&P 500 energy companies are expected to see an earnings decline of 22% in the quarter, according to FactSet, while tech companies on the index are expected to see a 10% decline and materials a 12% decline.
But the estimates for these highly cyclical sectors are overly pessimistic, Lynch wrote. They're a result of "the headwinds of weaker global growth and trade uncertainty, which led to above-average cuts to estimates."
"The 7% cut to first quarter estimates since the start of the year, [which were] the biggest cut since the first quarter of 2016, may have put the bar too low," Lynch wrote.
Importantly, stocks have already soared to start the year, with the S&P 500 up almost 16% year-to-date, and the average forward earnings multiple on the index hitting 17.32, above the historical average of 16.
More Oil M&A?
Anadarko (APC) - Get Anadarko Petroleum Corporation Report receiving a $33 billion cash-and-stock bid from Chevron (CVX) - Get Chevron Corporation Report , sending its shares up 32% to $61.69 apiece. But since Occidental (OXY) - Get Occidental Petroleum Corporation Report reportedly also made a bid, this could indicate that other companies in the oil sector might be in play, RealMoney's Kevin Curran wrote. Potential target companies include Apache (APA) - Get APA Corporation Report , Concho (CXO) - Get Concho Resources Inc. Report , (XEC) - Get Cimarex Energy Co. Report , and Pioneer (PXD) - Get Pioneer Natural Resources Company Report .
(By the way, Curran called the Chevron-Anadarko deal so he's worth listening to).