An Improving Earnings Outlook To Start 2021

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here.

Here are the key points:

  • With the start of the Q4 earnings season, the focus will be on expectations for full-year 2021 after the pandemic-plagued 2020. Estimates have been going up since early July, with S&P 500 earnings for the year expected to be up +22.7%.
  • With an extraordinary vaccination effort already underway, we feel that economic growth will turn out to be stronger than current consensus growth estimates for 2021, even though recent data suggests that growth in Q4 likely moderated as a result of the fall and winter infection surge.
  • As such, we see earnings estimates for 2021 going up in a meaningful way to catch up with the improving economic reality as we go through the first half of 2021. 
  • For 2020 Q4, S&P 500 earnings are expected to be down -10.4% on +0.3% higher revenues, which would follow a -7.0% earnings decline in Q3 on -0.7% lower revenues.
  • Overall, 11 of the 16 Zacks sectors are expected to experience earnings declines in Q4, with Transportation (-99.8% decline), Energy (-91.6%), Consumer Discretionary (-70.6%) and Conglomerates (-14.7%) as the big decliners.
  • For the Finance sector, Q4 earnings are expected to be down -7.6% on -2.9% lower revenues, which would follow declines of -11.7% in 2020 Q3, - 45.3% in Q2, and -32.6% in Q1.
  • For the Technology sector, Q4 earnings are expected to be down -0.3% on +9.2% higher revenues, which would follow the +13% earnings growth in Q3.
  • Sectors with positive earnings growth in Q4 include Construction (+27.2% earnings growth), Autos (+86.3%), Medical (+6.3%), Basic Materials (+7.6%) and Aerospace (+4.4%).
  • The Q4 reporting cycle has gotten underway already, as 13 S&P 500 members with fiscal quarters ending in November, have reported results in recent days. All of these November quarter companies get counted as part of our Q4 tally.   
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