Whatās Going On Here?Analysts are expecting US earnings to have grown by the most in a decade last quarter, as American companies leave 2020 in the rear-view and finally get back to the future. What Does This Mean?Itās that time of year when investors find out how companies have been performing, and theyāre expecting big things: analysts have raised their estimates for US firmsā earnings growth by 6% over the last three months. That record increase ā more surprising considering analysts usually lower their expectations ā could be because they slashed their earnings forecasts by too much at the height of the pandemic, or just because theyāve seen upward-trending economic growth expectations and adjusted accordingly.
Either way, US companies are forecast to have grown their earnings by 25% on average last quarter ā way above the 4% average of the past five years (tweet this). Throw in the fact that most companies tend to underpromise and overdeliver anyway, and earnings growth will probably reach at least 28% ā the highest in more than 10 years. Why Should I Care?Zooming in: All bets, please.
Investors reckon companies in the consumer discretionary sector ā i.e. sellers of nice-to-haves, like carmakers and luxury goods companies ā will post the biggest boost to earnings. Shoppers, after all, have needed something to spend their money on. Financial companies are projected to come in a close second, while energy companies and industrials ā especially airlines ā are expected to see their earnings drop.
For markets: Look for the underdogs.
Investorsā main aim during earnings season is to back companies thatāll beat expectations, but between sky-high share prices and ever-climbing growth forecasts, thatās easier said than done. Still, consumer staples and utilities firms seem like a good place to start: not only are they the worst-performing US sectors this year, but analysts havenāt adjusted their expectations of them lately ā making them the most likely to do something genuinely surprising. | 