The market appears to be shrugging off the very strong and reassuring run of quarterly earnings results, with unusual and speculative trading activities in a few heavily shorted stocks dominating the market discourse.

But then again, the market had already discounted this improving earnings picture, as reflected in the strong gains over the last few months. As such, the ongoing market weakness may not be tied to what’s happening to GameStop (GME), but rather a rerun of a sell-the-news type of reaction. After all, stocks don’t move up in a straight line and they are up more than +15% in the last three months.

Market volatility notwithstanding, we have to acknowledge that the fundamental backdrop, as reflected in the outlook for earnings and interest rates, remains very favorable. We have convincing evidence on the earnings front in the ongoing Q4 earnings season.

Not only are a historically high proportion of the reporting companies beating consensus EPS and revenue estimates, but they are also providing positive and reassuring guidance that is helping sustain the positive revisions trend that has been in place since July 2020, as the chart below shows.

We expect this favorable trend to strengthen and accelerate as we get into the heart of the Q4 earnings season this week, with more than 400 companies on deck to report results, including 103 S&P members. By the end of this week, we will have seen Q4 results from more than 57% of S&P 500 members.

Importantly, this week’s line-up includes a representative cross section of the economy, ranging from traditional bellwethers like Pfizer (PFE), UPS (UPS) and International Paper (IP) to new leaders like Amazon (AMZN), Alphabet (GOOGL), Spotify (SPOT) and many others in the middle.

Earnings Season Scorecard (as of Friday, January 29)

We now have Q4 results from 184 S&P 500 members or 36.8% of the index’s total membership. Total earnings (or aggregate net income) for these 184 companies are down -0.7% from the same period last year on -0.3% lower revenues, with 81% beating EPS estimates and 76.1% beating revenue estimates.

The two sets of comparison charts below put the Q4 results from these 184 index members in a historical context, which should give us a sense how the Q4 earnings season is tracking at this stage relative to other recent periods.

The first set of comparison charts compare the earnings and revenue growth rates for these 184 index members.

The second set of charts compare the proportion of these 184 index members beating EPS and revenue estimates.

As you can see above, the Q4 results from these index members compare favorably to what we had seen from the same group of companies in the recent past.

A number of sectors stand out in coming out with impressive results, with Technology and Finance particularly notable. Results from the Construction and Basic Materials sectors are also very strong.

For the Technology sector, we now have Q4 results from 63.7% of the sector’s total market cap in the index. Total earnings for these Tech companies are up +18.2% from the same period last year on +11.2% higher revenues, with 92.6% beating EPS estimates and 88.9% beating revenue estimates.

The chart below shows how the sector’s Q4 results stack up relative to other recent periods.

The chart below shows beats percentages for these Tech companies.

The Overall Earnings Picture

Looking at Q4 as a whole, total earnings for the S&P 500 index are expected to be down -2.6% from the same period last year on +1.5% higher revenues, with 7 of the 16 Zacks sectors expected to earn less than the year-earlier period.

Sectors with the weakest growth remain the same ones that struggled in the first three quarters of the year, including Transportation (-97.4% earnings decline), Energy (-98.3%), and Consumer Discretionary (-73.9%). Q4 earnings for the Aerospace sector now are expected to be down -138.4%, largely reflecting Boeing’s (BA) weak quarterly release.

On the positive side, Q4 earnings are expected to be up +64.5% at Autos, +36.7% at Construction, +23% at Basic Materials, +15.3% at Finance and +14.1% at the Technology sector.

Excluding Finance’s help, Q4 earnings for the rest of the S&P 500 index would be down -7.2%, instead of -2.6%. Earnings decline expands to -9.1% from -2.6% once Technology’s strong showing is excluded.

The chart below takes a big-picture view of S&P 500 quarterly expectations, with earnings and revenue growth expectations for the next three quarters contrasted with actuals for the preceding four periods; expectations for 2020 Q4 have been highlighted.

As you can see above, the growth picture is expected to improve meaningfully from the current period (2021 Q1) and onwards. The very strong growth in Q2 reflects the easy comparisons to 2020 Q2 when profitability bottomed following the Covid-19 hit.

The chart provides a big-picture view on an annual basis.

As you can see above, growth is expected to resume this year, with full-year 2021 earnings for the S&P 500 index currently expected to be up +25.1% relative to 2020 estimates.

Estimates for 2021 have been steadily going up over the last six months. But we strongly feel that there is significant room for further positive revisions as the overall macro backdrop stabilizes and gets clearer, particularly in the second half of the year.

For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report  A Positive & Reassuring Earnings Picture