With less than 10% of the S&P 500 having reported, results are strong and have boosted the blended consensus for first quarter year-over-year earnings growth from 25% to nearly 31%.
Both the beat rate, and the percent by which companies have been beating estimates, are well above historical norms.
The denominator effect of improving earnings (E) is helping ease some valuation concerns; but overall, the market remains historically expensive.
Although it’s early in the first quarter earnings reporting season, it’s worth a look at the progress so far and the implications for the rest of the season, as well as valuations. Less than 10% of S&P 500 companies have reported; but to sum it up, so far so very good. Based on Refinitiv data, the year-over-year “blended” earnings growth estimate (combining actual reports to date with consensus estimates) has jumped to nearly 31%. If it remains at that level, it would be the highest quarterly growth rate since the fourth quarter of 2010.
In aggregate, companies have reported earnings 30.8% above expectations; compared to a long-term (since 1994) average of 3.5% above estimates and average of 15.2% for the past four quarters. The percent of companies reporting better-than-expected earnings (“beat rate”) is 85%; with only 13% having reported weaker-than-expected earnings (“miss rate”). That compares to an average beat rate of 65% and miss rate of 20% since 1994; and an average beat rate of 78% and miss rate of 19% over the past four quarters.
The table below highlights the blended earnings growth rates for the S&P 500 overall; as well as each of the 11 sectors. Prior to reporting season getting underway, the first quarter growth estimate for the S&P 500 was 25%; which as noted has already jumped to nearly 31% thanks to the strength of the season so far. Topping the rankings in terms of growth rate for the quarter is the Financials sector—with a whopping 116% growth expected—followed by Consumer Discretionary. Looking ahead to next quarter, we can see that the traditionally most-cyclical sectors—notably Industrials and Energy—join Consumer Discretionary with eye-popping growth rates of more than 500% in the case of Industrials; and more than 200% in the case of Consumer Discretionary and Energy. These exceptionally strong gains are courtesy of “base effects” and the math associated with year-over-year comparisons relative to the second quarter of 2020; when much of the global economy was in lock-down.