Corporate earnings growth could hit a decade-high despite COVID-19 pandemic

MarketWatch2021-04-14

Earnings Watch: S&P 500 profits expected to show strongest growth since 2018, with a chance for best performance in more than 10 years, as banks’ results start the season this week. After lapping the...

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Comments

Kt18
2021-04-14
Kt18
Good sign of economy recovery
JLX
2021-04-14
JLX
Awesome
redder13
2021-04-14
redder13
With the big banks Q1 report it should set the stage for market sentiment subsequently
- nakazatous:
  Ok
firefirefire
2021-04-14
firefirefire
Good news again?!

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Companies have a tendency to deliver results ahead of expectations, though, and they’ve been beating estimates by an especially wide margin during the pandemic, leading FactSet Senior Earnings Analyst John Butters to suggest the S&P 500 could deliver earnings growth of 28%, which would mark the best growth in more than 10 years.\nThe first quarter is a bit unique, as results from the past three months will be compared with a year-ago period that saw about two months of normal performance before COVID-19 lockdowns disrupted the economy. Analysts are calling for a dramatic improvement from last year’s performance that would kickstart a blockbuster year of earnings growth after multiple earnings recessions in recent years.\nSome of the strongest categories in the first quarter should be those that stand to benefit the most from an economic recovery. Analysts are looking for earnings growth of more than 100% within the consumer discretionary sector, despite continued weakness in hotels and cruise lines. The financial sector is next, with expected earnings growth of 79.5%, and banks kick off the earnings parade later this week.\n“Banks tell you a lot about the economy,” including whether consumers or corporations are driving loan growth and whether consumers still are struggling financially even with recent stimulus payments, said Bill McMahon, the chief investment officer for active equity strategies at Charles Schwab Investment Management.\nHe’ll be interested to see the performance of cyclical names against defensive ones, following big run-up in cyclical stocks amid recent vaccine progress as defensive stocks have lagged.\n“Are cyclical expectations so high or are defensives too low?” McMahon asked.\nThe industrial and energy sectors are projected to be the biggest detractors from S&P 500 earnings growth, with analysts surveyed by FactSet calling for a 17.3% profit decline in industrials and a 17% drop for the energy sector.\n“Energy didn’t fall off a cliff until the second quarter” of 2020, CFRA Chief Investment Strategist Sam Stovall said, but “2021 will definitely be a shift from outright loss to actual profits.”\nWhile the industrials sector “did not post outright losses,” the sector was “down as much as 81% in Q2 [2020], so earnings shrank dramatically and will be recovering quite nicely,” he continued.\nAnalysts are feeling increasingly optimistic about overall corporate performance, with the current expectations for 24.6% earnings growth up from 15.7% growth that analysts tracked by FactSet were predicting as of the end of December.\nCorporate profits continue to recover following a surprise 3.9% increase in earnings in the fourth quarter that snapped the S&P 500 out of its latest earnings recession, but the most dramatic performances await when companies report their second-quarter numbers, given that the corresponding period a year ago saw the biggest impact from the pandemic.\nAnalysts tracked by FactSet now expect 53.2% profit growth for the second quarter, up from the 45.4% increase they expected as of late December. Expectations for strong earnings momentum helped push stocks upward in recent months, and the question is whether companies will be able to meet that high bar for a recovery.\n“There’s an awful lot of enthusiasm in the market right now,” Stovall said, with a forward price-to-earnings ratio of 23.5, a 40% premium to the average since 2020. “Either the market has to come down in price or earnings have to really come up a lot more than is currently anticipated.”\nMcMahon will be looking for “signs of resumption of normal activity” as management teams discuss early second-quarter trends, though he notes that despite expected rebounds for areas like travel and energy, investors may need to “temper enthusiasm” for technology companies that performed well during the pandemic. In addition, investors following multinational companies should take into account that many parts of the world haven’t been vaccinating their populations at the same rate as the U.S., which could impact recovery timelines.\nCorporate financial guidance offers one way for investors to get a sense of how the second quarter is shaping up, but many companies have held off on issuing formal outlooks given the uncertainties brought on by the pandemic.\n“In my mind, there’s much more clarity now than a year ago,” McMahon said, suggesting more companies could reinstall guidance. Still, there’s the possibility that some could stick with their pandemic patterns and never offer guidance again.\nCFRA’s Stovall said that “there has to be some guidance for analysts to continue to underestimate growth,” noting that companies have “historically done a very good job of managing expectations.” Going back to 2011, actual results have exceeded estimates in 36 out of 37 quarters, beating by 4.2 percentage points on average, he said.\nThe week ahead\nResults from the big banks typically mark the unofficial start to earnings season, with Wells Fargo & Co.WFC,-2.40%,JPMorgan Chase & Co.JPM,-1.19%,and Goldman Sachs Group Inc.GS,-1.25%all due to report Wednesday morning. Bank of America Corp.BAC,-1.85%and Citigroup Inc.C,-0.87%follow Thursday morning, while Morgan StanleyMS,-0.81%rounds out the week Friday.\n“To us, the key driver of share reactions will be whether results reinforce a positive narrative of economic strength and higher rates leading to positive earnings revisions and expanding profitability,” UBS analyst Saul Martinez wrote. He expects that earnings upside will be “likely driven by an improving outlook for credit quality,” though he notes that “the market likely rewards falling credit costs much less than an improving top-line outlook.”\nOther highlights include Delta Air Lines Inc.DAL,-1.15%,which may have gotten off to a slower-than-anticipated start this year, according to Cowen & Co. analyst Helane Becker. “Street estimates are largely stale,” she wrote in a note to clients Friday, arguing that they don’t reflect sluggish demand in January and February or a quicker-than-expected recovery in jet fuel prices that could weigh on margins.\nDelta stands to benefit from a reopening of the economy, alongside fellow Thursday-morning earnings reporter PepsiCo Inc.PEP,+0.02%","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":344602836,"gmtCreate":1618403087425,"gmtModify":1704710246962,"author":{"id":"3577585651785890","authorId":"3577585651785890","name":"Kt18","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3577585651785890","authorIdStr":"3577585651785890"},"htmlText":"Good sign of economy recovery&nbsp;","listText":"Good sign of economy recovery&nbsp;","text":"Good sign of economy recovery","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/344602836","repostId":1159775100,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":344881635,"gmtCreate":1618396765827,"gmtModify":1704710156857,"author":{"id":"3575719904277494","authorId":"3575719904277494","name":"JLX","avatar":"https://static.tigerbbs.com/8b2b82874072af259f37b9124bc903b7","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3575719904277494","authorIdStr":"3575719904277494"},"htmlText":"Awesome&nbsp;","listText":"Awesome&nbsp;","text":"Awesome","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/344881635","repostId":1159775100,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":344813166,"gmtCreate":1618395425955,"gmtModify":1704710140424,"author":{"id":"3561714731469739","authorId":"3561714731469739","name":"redder13","avatar":"https://static.tigerbbs.com/8df41dc5cd7a8a22e5756d2e8067fa62","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3561714731469739","authorIdStr":"3561714731469739"},"htmlText":"With the big banks Q1 report it should set the stage for market sentiment subsequently","listText":"With the big banks Q1 report it should set the stage for market sentiment subsequently","text":"With the big banks Q1 report it should set the stage for market sentiment subsequently","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/344813166","repostId":1159775100,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4033223,"gmtCreate":1618395920423,"gmtModify":1680784020590,"authorId":3570519374633708,"author":{"id":3570519374633708,"idStr":"3570519374633708","authorId":3570519374633708,"name":"nakazatous","avatar":"https://static.tigerbbs.com/9ac34656b654252df0f82999785e92ae","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":344813166,"type":1,"supId":0,"prevId":0,"content":"Ok","text":"Ok","html":"Ok"}],"langContent":"EN"},{"id":344832594,"gmtCreate":1618394657418,"gmtModify":1704710132810,"author":{"id":"3570742778586711","authorId":"3570742778586711","name":"firefirefire","avatar":"https://community-static.tradeup.com/news/e33159cc1bfc6784fa479fe87a11fd33","vip":1,"hat":"https://static.tigerbbs.com/ae1f49570794979e009a5efdeb6f4789","crmLevel":7,"crmLevelSwitch":1,"idStr":"3570742778586711","authorIdStr":"3570742778586711"},"htmlText":"Good news again?!","listText":"Good news again?!","text":"Good news again?!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/344832594","repostId":1159775100,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":14,"commentSize":4,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; 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