The outstanding fourth-quarter earnings season we had in 2020 is a tough act to follow, but 2021’s first quarter has the makings of another potentially great earnings season. The reopening of the economy continues to move forward, and corporate America has done an excellent job managing through the pandemic. In fact, it won’t take much of an upside surprise for year-over-year S&P 500 Index earnings growth to reach 30% this quarter. The 2021 earnings boom is here.
Poised For Another Strong Earnings Season
Coming into fourth-quarter earnings season, investors had plenty of reasons to expect companies would deliver better-than-expected results—and they did. Virtually no one—ourselves included—expected S&P 500 companies to grow earnings in aggregate during fourth quarter 2020, especially considering fourth quarter 2019 was over before the pandemic began in the U.S. Well, corporate America delivered 4% year-over-year earnings growth in the fourth quarter of 2020 despite the difficult year-over-year comparison, as shown in [Figure 1], which was about 13 percentage points better than the consensus estimate when the fourth quarter began on October 1, 2020.
The first piece of good news is that we now have much easier comparisons over the next couple of quarters, setting up a possible 30% year-over-year increase in S&P 500 earnings for the first quarter of 2021. FactSet consensus is currently calling for a 24% increase, and six percentage points of upside appears very realistic given double-digit upside surprises the past three quarters.
The second piece of good news is that most of the factors that contributed to such a big upside surprise last quarter remain in place today, including the following:
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All index data from FactSet.
Please read the full Outlook 2021: Powering Forward publication for additional description and disclosure.
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