Image: Bigstock

Earnings growth was expected to resume in the first quarter of 2021 after the pandemic-driven declines of 2020. But positive growth has arrived a little earlier, with earnings in the ongoing Q4 earnings season now modestly above the year-earlier period.

The chart below takes a big-picture view of quarterly earnings and revenue growth for the S&P 500 index that shows actual results for the last four quarters and current consensus estimates for the coming three periods, with 2020 Q4 highlighted in the middle.

To give you a sense of how much the Q4 growth pace has changed in recent weeks and how good the reporting cycle has been, keep in mind that as recently as mid-December 2020, the consensus estimate was for a decline of -11.2%.

Earnings Season Scorecard (as of Friday, February 5^th)

The Q4 earnings season has now crossed the half-way mark, with results from 292 S&P 500 members or 58.4% of the index’s total membership out already. Please note that these 292 index members collectively account for 75.6% of the index’s total market capitalization. As such, the results out already represent a true cross-section of the index as a whole and of the overall earnings picture.

We have another busy reporting line-up this week, with more than 450 companies on deck to report Q4 results, including 82 S&P 500 members. This week’s reporters range from legacy blue chips like Disney (DIS - Free Report), Coke (KO - Free Report), and others to up-and-coming bellwethers like Uber (UBER - Free Report), Twitter (TWTR - Free Report), and others.

Total Q4 earnings (or aggregate net income) for these 292 companies are up +4.9% from the same period last year on+2.4% higher revenues, with 80.5% beating EPS estimates and 79.5% beating revenue estimates.

The two sets of comparison charts below put the Q4 results from these 292 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 292 index members.

The second set of charts compare the proportion of these 292 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.

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 move into the second half of the Q4 earnings season this week, with more than 450 companies on deck to report results, including 82 S&P members.

A number of sectors standout 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 83.7% of the sector’s total market cap in the index. Total earnings for these Tech companies are up +22.3% from the same period last year on +14.2% higher revenues, with 90.7% beating EPS estimates and 86% 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, combining the actual results from 292 index members with estimates for the still-to-come companies, total earnings are now expected to up +2.2% on +2.5% higher revenues. This positive growth follows three-straight quarters of declines for S&P 500 earnings.

Sectors with the weakest growth remain the same ones that struggled in the first three quarters of the year, including Transportation (-91.7% earnings decline), Energy (-94.1%), and Consumer Discretionary (-72.5%). Q4 earnings for the Aerospace sector now are expected to be down -138.4%, largely reflecting Boeing’s (BA - Free Report) weak quarterly release.

On the positive side, Q4 earnings are expected to be up +142.9% at Autos, +38.3% at Construction, +22.1% at Basic Materials, +17.6% at Finance, +19.6% at Technology, +13.9% at Medical and +10.4% at the Retail sector.

Excluding Finance’s help, Q4 earnings for the rest of the S&P 500 index would be down -1.8%, instead of +2.2%. Q4 Earnings decline -4.6% rate, instead of up +2.2% once Technology’s strong showing is excluded.

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 +27% 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.