S&P 500 21Q1 Earnings Preview: Expectations Continue To Rise

This may be a stretch given that the current 21Q1 earnings surprise factor is 7.0% for the 16 constituents that have already reported results. If we apply a more conservative surprise factor of 7.0%, 21Q1 earnings growth could improve to 32.6% by the end of the earnings season.

Greatest improvement in value sectors

21Q1 earnings growth expectations have steadily increased over the last five months as shown in Exhibit 2. The expected 21Q1 earnings growth rate is currently 24.2%, which has increased from 16.0% at the beginning of the year.

Exhibit 2: S&P 500 21Q1 Earnings Growth Trend

YoY comparisons may not be as meaningful this year given the low base from 2020.  Instead, we look at the rate of change in growth rate expectations as a better indicator of sentiment.

All but two sectors have seen positive revisions to 21Q1 growth expectations since the beginning of the year. The rotation into value seems to be at the forefront, as the Energy sector has seen the largest upward revisions in growth expectations since the beginning of the year, improving 51.2 percentage points (-5.1% vs. -56.3%). The Financials sector has seen the second-largest increase in growth expectations this quarter, improving 20.2 ppts (68.9% vs. 48.7%). Finally, the Materials sector has seen the third-largest increase in growth expectations, improving 16.7 ppts (47.0% vs. 30.3%).

Only Consumer Staples and Industrials have seen negative revisions to earnings growth during this period.  The Industrials 21Q1 earnings growth rate has declined from -0.1% to -13.4%, while the Consumer Staples growth rate has declined from 1.0% to 0.3%.

Banks traditionally kick off earnings season and are looking to continue the strong momentum from 20Q4. Looking at the latest This Week in Earnings report, four of the ‘Big Six’ banks including Goldman Sachs, Morgan Stanley, JPMorgan Chase, and Citigroup are expected to post a positive earnings surprise, using StarMine Analytics.

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