NEW YORK (Reuters) – Investors will be anxious to see if the next quarterly US corporate reports and outlook validate expectations of a sharp rise in revenue and the economy in 2021, which was devastated by the pandemic of coronavirus last year.
U.S. stocks are at record highs, driven largely by optimism that the deployment of COVID-19 virus vaccines will allow for this recovery, while hopes for more fiscal stimulus under the U.S. president-elect, Joe Biden, have also been the support of the market.
The earnings reports for the last quarter of 2020 begin this week, with the release of the results from JP Morgan, Citi and other major banks.
According to Refinitiv’s IBES data, the profits of the S&P 500 companies are expected to have fallen by 9.8% in the fourth quarter compared to last year.
But profits are expected to recover this year, with a 16.4% gain forecast for the first quarter. This forecast has improved since the fall, while S&P 500 earnings are expected to grow 23.6% in 2021, benefiting from easy comparisons with 2020.
Investors may be more eager to find out what company executives say about 2021 than to see fourth-quarter results, which occur as virus cases increase in the United States and Europe.
“Management and analysts will not really focus on the rearview mirror. They’re really thinking about 2021, ”said Kenneth Leon, research director at CFRA Research.
What will also be key is “the pulse of each sector and how it affects investors in terms of thinking about whether there is attractive value or whether they may need to take a breather,” Leon said.
The S&P 500 is trading 22.7 times in advanced profits, well above the long-term average of about 15, according to Refinitiv data.
(GRAPH – US earnings during the fourth quarter 🙂
“Stocks already reflect a pretty positive earnings outlook,” said Rick Meckler, a partner at Cherry Lane Investments, a family investment firm in New Vernon, New Jersey.
Earnings in the energy and industrial sectors are expected to have declined for most of all sectors during the fourth quarter.
Although economically sensitive sectors like these have outperformed the broader market in recent months, they are still lagging behind in technology by 2020, and some of their valuations are generally less expensive than other sectors.
Much of the cyclical names fall under the “value” label and investors have seen the Russell 1000 value index narrow the Russell 1000 growth index gap after optimistic news about the vaccine.
With cases of viruses on the rise, many strategists expect a greater recovery to occur during the second half of the year.
“The prospects for the second half are likely to increase as companies gain clarity and ultimately trust,” Lindsey Bell, chief investment strategist at Ally Invest, wrote on Friday.
Still, the uncertainty surrounding the recovery makes corporate information even more critical at this stage, though not a “formal” orientation, said Quincy Krosby, Prudential Financial’s chief market strategist in Newark. New Jersey.
“This is important for a market that wants to turn the corner,” he said after a tough year.
Reports by Caroline Valetkevitch; additional reports by Lewis Krauskopf; Editing by Alden Bentley and Cynthia Osterman