US earnings season shows corporate sector rebound

Date: 15 February 2021

 

Author(s): Aziza Kasumov  

Source: Financial Times

 

 

Less than a year after the COVID-19 pandemic sent financial markets into a turmoil and drove the US into recession, corporate America had managed to turn the page on the coronavirus-induced downturn in the last quarter of 2020.

 

According to data from Refinitiv, revenues for companies within the blue-chip S&P 500 index rose 1.3 per cent year on year (yoy) in the last three months of 2020, while profits climbed 3.4 per cent on the same basis.

 

On the back of government stimulus and looser monetary policy from the Federal Reserve, the return to sales and earnings growth that followed three consecutive quarters of contraction came sooner than many analysts had expected. As recently as the start of 2021, analysts had been expecting fourth-quarter revenues to decrease 1.4 per cent.

 

The figures take in more than 70 per cent of companies within the index that have already released their quarterly results as well as Wall Street estimates for those businesses that have yet to report.

 

Analysts now estimate a 23.3 per cent rise in earnings per share for S&P 500 companies this year, following the 12 per cent collapse in 2020. Sales for S&P companies are projected to rise 16 per cent to more than $12 trillion, with fast growth expected in the industrials, consumer discretionary and materials sectors as the economy recovers.

 

“We think this year we have the potential to see growth that is very well above the trend line,” said Nancy Prial, co-chief executive and senior portfolio manager at Essex Investment Management.

 

Investors have been keeping a close eye on the arguments at Congress about a proposed $1.9 trillion spending package that could provide a powerful additional economic stimulus. The rollout of the coronavirus vaccines is also seen as critical to the prospects of hard-hit businesses, including airlines, hotel operators and energy companies that struggled for much of last year with depressed demand for energy as the world locked down.

 

Strategists expect the recovery to strengthen in the coming months. “In a way, we’re almost likely to have come a full circle in 15 or 16 months from the end of February, when markets peaked,” said Esty Dwek, head of global market strategy at Natixis Investment Managers.