After a chilly January, during which the S&P 500 slumped 7%, stock market investors are enjoying a warmer February. But as they say in my native New England: If you don’t like the weather now, just wait a minute.

On Tuesday, the main U.S. stock market indices all rose as follows: The Dow Jones Industrial Average +371.65 (+1.06%); the S&P 500 +37.67 (+0.84%); the NASDAQ +178.79 (+1.28%); and the Russell 2000 +32.77 (+1.63%).

In pre-market futures contracts Wednesday, the four U.S. indices were trading in the green. European and Asian stocks also were extending their gains.

Are the bulls back in control? The big test comes Thursday, with release of the latest data for the U.S. consumer price index.

Investors are finding encouragement from corporate earnings. According to research firm FactSet, 56% of companies in the S&P 500 have reported actual results for Q4 2021 to date. Among these companies, 76% have reported actual earnings per share (EPS) above estimates, which is equal to the five-year average.

As of this writing, the blended EPS growth rate for Q4 2021 is 29.2%. “Blended” combines actual results for companies that have reported and estimated results for companies that have yet to report (see chart for a sector breakdown).

[Note: On the above chart, a year-over-year growth rate is not being calculated for the energy sector due to the loss reported by the sector in calendar year (CY) 2020.]

If 29.2% turns out to be the actual Q4 2021 EPS growth rate for the S&P 500 index, it will represent the fourth straight quarter of earnings growth above 25% for the index.

On the revenue front, 77% of S&P 500 companies have reported actual Q4 revenues above estimates, which exceeds the five-year average of 68%. The blended revenue growth rate for the fourth quarter is 15.0%.

For CY 2021, the blended earnings growth rate is 47.0%. That rate of growth is expected to slow down this year, though. For the first half of CY 2022, analysts expect earnings growth of 5.6% for Q1 2022 and 4.4% for Q2 2022.

The conference calls that accompany these earnings events are a treasure trove of information. FactSet reports that on these calls to date in Q1 2022, the terms “inflation” and “supply chain” are cited with frequency, which shouldn’t come as a surprise.

However, you might be surprised to learn that many executives are saying that they’re not overly concerned about rising inflation and supply chain disruptions. Notably, during its latest quarterly earnings call, when Apple (NSDQ: AAPL) crushed expectations, executives labeled as “overblown” investor fears about the company’s supply chain.

Read This Story: Straight Talk About Inflation

My expectation is for markets to remain resilient in the coming months, albeit with bouts of volatile trading. As events proved, it was overly optimistic of Federal Reserve Chief Jerome Powell to call inflationary pressures “transitory.” That said, I agree with a growing chorus of analysts who expect inflation to significantly moderate in the second half of 2022.

Cyclicals poised to outperform…

Consumer sentiment has slipped in recent months, as inflation demoralizes the public. We’ll get a new reading of consumer sentiment on Friday.

If Thursday’s inflation numbers come in hot again, it’s likely that consumers will start to limit their spending to staples such as food, household items and, oh yes, alcohol and tobacco. They’ll probably spend only reluctantly on discretionary items such as vacations, jewelry, and other luxury goods.

Despite recent pullbacks, it’s increasingly difficult to find stocks to buy that are trading at reasonable valuations. The S&P 500 is trading at a 12-month forward price-to-earnings (P/E) ratio of 22.3, which is stretched in comparison to projected earnings growth.

Under the conditions that I’ve just described, consider cyclical reopening plays in such sectors as industrials and materials, which should outperform in the coming months as the economy improves.

Are you still worried about risks such as inflation and rising interest rates? To reap profits in good or bad times, turn to the trading methodologies of my colleague Jim Fink.

Jim Fink is chief investment strategist of the elite trading services Options For Income, Velocity Trader, and Jim Fink’s Inner Circle.

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John Persinos is the editorial director of Investing Daily.

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