The corporate profitability picture brightened in the fourth quarter, with earnings growth projected for S&P 500 companies for the first time since the end of 2019.
According to data from Refinitiv, S&P 500 earnings are expected to have increased 0.9% in the fourth quarter from a year ago, defying analysts’ expectations of a 10.3% decline after a year of weakness due to the coronavirus pandemic.
“Upbeat fourth-quarter results would bolster expectations for a strong rebound in earnings in 2021 and help to ease investor worries that valuations are overstretched,” Reuters said.
S&P 500 earnings are projected to increase 23.5% in 2021 compared with an estimated 12.6% drop in 2020, based on Refinitiv’s data.
Stronger-than-expected earnings from high-profile companies including Alphabet and Amazon.com drove the fourth-quarter forecast, with Apple, Microsoft, Facebook, JPMorgan Chase & Co., and Goldman Sachs among the other main contributors, Tajinder Dhillon, senior research analyst for Refinitiv, said.
About 83% of the S&P 500 companies’ ourth-quarter reports released so far have beaten analysts’ earnings expectations, above the 76% average of the past four quarters, according to Refinitiv.
In early December, FactSet was forecasting a 10.1% decrease in S&P 500 earnings for the fourth quarter, which would have been the third-largest decline since Q3 2009.
Corporate earnings for the third quarter last year were far better than analysts had anticipated, with the average company beating its earnings estimate by about 19%, versus the 3% beat that is typically reported.
“Big business in America has learned how to manage through the [COVID-19] crisis,” said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, N.J. “It’s the small companies, the family-owned businesses, restaurants, and some specific industries that have been badly hurt.”
“With technology in particular, businesses found a way to move work to home and a lot of those companies benefit from that. That’s what’s caused them to outperform so greatly throughout the crisis,” he added.
According to CNBC, analysts are expecting a notable acceleration in earnings midyear in sectors deemed most sensitive to the COVID-19 vaccine rollout, including airlines, banks, and energy.