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Market Insights5 Mins Read

Mid-Season Earnings Review: Companies on track for biggest earnings surprise since 2008

Mid-Season Earnings Review

The earnings season is halfway through, with 59% of companies on the S&P 500 declaring teir results.

Data from Factset shows 88% of S&P 500 companies posted earnings surprises. Information technology and healthcare led the surprise with 98% and 97%, respectively. Materials companies had the lowest positive earnings surprise at 71%.

US earnings fine print

Earnings growth in the US has been above estimates for the past several years. This is in part due to low cost of capital. Over the past five years, 75% of companies have beaten analyst forecasts. But if the 88% beat holds up this quarter, it will be the best performance since 2008.

However, some tech companies, such as Amazon missed estimates. The earnings miss for the e-tailer may be a hint that the pandemic bump may be waning. Besides, the company faced labour shortages. Lawmakers seeking to reduce the power of Big Tech have clouded the outlook for such companies.

On the whole, blended earnings growth during the season stood at 85.1% year-on year, putting S&P 500 companies on track for the best performance since 2009. The low base effect is one of the key reasons that drove strong profit growth. During the second quarter last year, much of the US remained under lockdown to beat the pandemic.

At a total level, companies’ reported earnings were 17.2% more than expected. Consumer discretionary companies such as Ford, Nike and Hasbro drove the growth. This indicates that consumer spending is fast returning to customers in the US. The key factor behind this is the fiscal and monetary policy steps taken by the US government and the Fed.

About 88% of companies also beat revenue growth forecasts. This could also end up being the best since 2008. On a quarterly basis, revenues grew 4.5%, much higher than the past five-year growth of 1.2%. On a year-on-year basis, revenues have grown 23.1%, compared to the five-year average of 4.5%.

Following the earnings season, the S&P 500 forward price-to-earnings ratio stands at 21.2. This is above the five-year average (18.1) and 10-year average (16.2). But continued earnings momentum could help stocks continue to do well.

India Q1 result story

While US companies reported overwhelmingly positive results, Indian companies weren’t too far. Companies posted their best profit and revenue growth in 12 quarters.

According to a Moneycontrol report, profit growth for the BSE 500 companies so far stood at about 150%. Revenue growth came in at a little over 50%.

The low base effect was starker for Indian companies. This was because India’s lockdown last year was among the strictest. This caused economic activity to come to a standstill.

But total revenue, which fell sharply last year, recovered to pre-COVID levels.

Industrials, auto, metals and real estate companies posted 100% to 150% revenue growth.

Indian indices have done well bolstered by the earnings season. The Nifty hitting the 16,000 level for the first time in history.

Conclusion

The easy policy stance by the Fed and other central banks has helped global equities. The Fed has indicated that any unwinding of the monetary policy will be gradual. As a result, earnings will likely continue to support markets.

Disclaimer

This blog article has not been reviewed by the MAS. It is prepared solely for information purposes and does not constitute an offer or solicitation for the purchase or sale of units in the funds. This does not constitute any form of investment advice and Kristal Advisors (SG) Pte Ltd does not take into account your personal investment objectives, specific investment goals, specific needs, or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here. The information and publications are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Kristal Advisors (SG) Pte Ltd.

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