Wall Street prepares for historic surge in U.S. corporate earnings
Major US companies are expected to announce a sharp rebound in profits in the second quarter earnings season, highlighting the scale of recovery of US corporate wealth since the pandemic.
It is estimated that in the three months to the end of June, the earnings per share of groups listed in the blue chip S&P 500 index increased by nearly 63% year-on-year, after a 52.5% increase in the first quarter. According to FactSet data, the first quarter of 2021. If the data in the second quarter meets Wall Street’s expectations, this will be the largest increase since the outbreak of the financial crisis in 2008-09.
Earnings season will begin this week. Major banks such as JPMorgan Chase, Bank of America, and Citigroup will announce financial results. This will become particularly important because the S&P 500 index has risen by nearly 16% since the beginning of the year, and the transaction price is close to history. High position. this year.
Jonathan Golub, chief U.S. equity strategist at Credit Suisse, said that after the severe earnings recession triggered by the coronavirus crisis in the first three quarters of last year, profits are expected to recover and they are expected to be driven by banks and other economically sensitive groups. . .
The stocks of these “cyclical” companies have performed well this year, as investors expect the world’s largest economy to achieve strong growth after a 3.5% decline in output last year.
Energy stocks, benefiting from rising commodity prices, led the gains this year, and the S&P 500 index tracked the sector’s gains by more than one-third this year. Since the end of 2020, financial stocks, including banks, have grown by about one-fifth.
Golub added that the expectation of a substantial increase in earnings is a key reason for the stock price increase this year. This means that even if the Standard & Poor’s 500 Index jumps to an all-time high, the key indicators of valuation remain basically stable. According to data from FactSet, the current price of the index is 21.6 times, and the expected return at the end of December is 22.16 times.
Nevertheless, Rupert Thompson, chief investment officer of Kingswood Group, issued a warning.
“I think we are at the peak of absolute growth levels,” he said. “I’m not saying it will turn negative, but the benefits will continue to support the idea as big as the past six months to a year. [is dubious]. “
Federated Hermes’ Geir Lode agreed with this and warned that the earnings season is a “potential minor issue” for the market. “This can be challenging for many companies because of their strong performance in the first quarter. It will be difficult to meet such high expectations afterwards.”