Investments: Road to Recovery
S&P companies forecast to deliver $12trn in 2021 sales
The latest earnings season data confirm that, after three consecutive quarters of contraction, S&P 500 companies have returned to sales and earnings growth much sooner than analysts had forecast. Only two months ago, US company analysts were predicting fourth-quarter revenues to decline. Instead, the figures show that corporate America has turned the corner. Thanks to epic levels of US government stimulus and super-low interest rates, by Tuesday (2 Mar), when 98% of S&P 500 companies had reported fourth quarter earnings, 69% had beaten sales forecasts and 79% had beaten expectations for earnings per share (EPS).
Europe on course
Earnings for European companies also look robust. By Tuesday (2 Mar), 76% of the STOXX Europe 600 had reported earnings for the fourth quarter with 43% delivering positive sales surprises and 45% beating analysts’ earnings forecasts. In aggregate, weighted European earnings were 20% ahead of forecast at this stage and on course to beat expectations by the most for at least 14 years.
Despite the strong numbers coming from European companies, stock prices generally eased suggesting that much of the good news was already priced into the market. In the UK, where 25 FTSE 100 companies had published earnings reports, 28% had delivered both positive sales and earnings surprises.
In Japan, the Nikkei 225 constituents delivered 61% positive sales surprises and 55% positive earnings surprises.
As Quilter Investors senior dealer Jonathan Perrin observes, “This is a very strong set of earnings numbers especially in the US where blended EPS growth hit 3.9% after analysts had been expecting an almost double-digit drop at the end of 2020. “We could well see a 25% rise in EPS for S&P 500 companies this year, after it fell 12% in 2020, with total sales for S&P companies now expected to jump 16% to more than $12trn in 2021. Sectors such as industrials, consumer discretionary and materials will all benefit from economic recovery,” he says, “while the vaccine rollout likely holds the key for the airlines, energy companies and the hospitality sector.”