An Improving Earnings Outlook To Start 2021

On the Q4 earnings season front, we have already seen quarterly results from 13 S&P 500 members. All of these companies, which includes bellwethers like Costco (COST - Free Report) , Nike (NKE - Free Report) , FedEx (FDX - Free Report) , Oracle (ORCL - Free Report) and others, have reported results for their fiscal quarters ending in November. We and other data vendors count these November-quarter results as part of the overall Q4 tally.

The chart below shows the quarterly earnings and revenue growth picture.

We remain positive in our earnings outlook, as we see the full-year 2021 growth picture steadily improving through the first half of the year as more of the population gets vaccinated.

We strongly feel that current consensus economic growth projections reflect learned experiences of economic recoveries from the last few recessions. We don’t think that this recovery will follow this past pattern as this downturn was fundamentally different as its epicenter was medical and not financial. As such, we see significant upside to current consensus GDP growth estimates for 2021, which drives our favorable earnings outlook for the year and beyond.

The chart below shows the overall earnings picture on an annual basis.

The flow of recent economic readings about the labor market, factory space and even retail sales suggest that activity levels have moderated in response to the ongoing surge in infections. But with the extraordinary vaccination effort already underway, it is reasonable to expect the pandemic getting under control towards the end of the first quarter of 2021.

As such, while growth in the current period (2020 Q4) will likely remain under pressure, we should expect the outlook to steadily improve in the New Year.

Beyond the Q4 earnings season, the outlook remains positive.

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