High hopes for the earnings season have turned reality, but the markets haven't rallied. One of Wall Street's biggest bulls says there's nothing to be concerned about.
"I think the disconnect around all of this really lies around the fact that we've got great earnings — 25 percent earnings growth — and everybody's saying 'well, that looks like it. Peak earnings growth. So what's next?'" John Stoltzfus, Oppenheimer Asset Management chief investment strategist, said Monday on CNBC's "Trading Nation" Monday.
earnings have risen 25.6 percent in the first quarter, largely driven by corporate tax cuts passed in December. Of the roughly four-fifths of S&P 500 companies that have reported earnings, 79 percent have exceeded estimates, according to Thomson Reuters.
Strong earnings have not filtered through to across-the-board equity gains. Since the big banks kicked off earnings season on April 13, the S&P 500 has added just 0.5 percent.
Markets shouldn't get "spoiled" by this first-quarter performance, says Stoltzfus. While Wall Street may not see another quarter quite this strong, earnings growth will continue to be supportive of equities, he said.
"We think that improved earnings will prevail even if in the quarters that follow we see a reduction in terms of earnings growth," he said. "So long as we get this double-digit type of earnings growth, or at least high singles, we should be OK."
Analysts surveyed by FactSet anticipate 20 percent earnings growth for fiscal 2018 but forecast half that pace in 2019 and 2020.
Investors worried about an economic peak should also take a breather, according to Stoltzfus. He expects slow and steady growth to continue.
"I think we've got better growth coming but modestly better," he said. "I don't think we're going to see rapid growth here because of the effects of technology, globalization and overcapacity."
While bullish on broader markets, Stoltzfus says some sectors are poised to benefit the most in this environment.
"We like technology, we like industrials, we like financials and we like consumer discretionary," he said. "Everything cyclical."
The information technology sector is the best performer on the S&P 500 this year with gains of nearly 8 percent. Consumer discretionary is runner-up at 5 percent. The financials sector has dropped 2 percent and industrials 4 percent.
"Our underweights include utilities, telecoms, because of their bond proxy aspect," said Stoltzfus. "We also have to admit that we are underweight energy."
Rallying crude oil prices have lifted the energy sector into the green for the year. The sector is up 2 percent in 2018 and has risen by nearly 10 percent in just the past month. Stoltzfus says the possibility of a pullout from the Iran deal offers only a short-term catalyst.
The S&P 500 should end the year at 3,000, he said, driven by an increase in earnings to $146 per share. Stoltzfus' price target is one of the most bullish on the Street.