A Preview of Q4 2021 EarningsLearn more about this firm
We are just starting earnings season, when companies will be reporting how much money they made in the fourth quarter of last year. This is always an important time, as stock values depend crucially on how much money companies make. But this season will be especially important.
The reason is that this quarter there are two key issues we need to watch. In the short term, with the economy hit by the winter Delta wave and the start of the Omicron wave, the question is how much damage was done. Will the fourth quarter be a weak one? In the longer term, this quarter’s results will give us some guidance as to whether the very strong earnings growth we saw last year will continue for another couple of quarters—or peter out.
Expectations are for strong growth. Earnings are expected to be up by more than 20 percent for the fourth quarter, which will likely be revised up as we see more data. This will be the fourth quarter in a row we see such strong growth. For the year, earnings are expected to rise by more than 40 percent. Even though that 20 percent plus growth is healthy, it is still down materially from the past three quarters. Some degree of slowdown is apparently baked in the cake, but the question will be how much.
So far, the news is good. According to FactSet, for the companies that have reported so far (which is only 4 percent of the S&P 500), that 20 percent plus target is doing better than holding up. More than three-quarters have reported earnings higher than expected, and 9 of 10 had better revenue than expected. The earnings beats are also widespread, with eight sectors reporting higher earnings than were expected at the end of last year. While it is early days here, with 96 percent of companies still to report, the data so far suggests analysts have finally figured out how to set their expectations. That also implies that economic and market conditions have once again become dominant in company results, rather than the pandemic or federal policy changes.