US earnings season shows corporate sector rebound

Corporate America started to turn the page on the coronavirus-induced downturn in the fourth quarter, less than a year after the pandemic sent financial markets into a tailspin and pushed the US into recession.

Revenues for companies within the blue-chip S&P 500 index rose 1.3 per cent year on year in the final three months of 2020, while profits climbed 3.4 per cent on the same basis, according to data from Refinitiv.

The return to sales and earnings growth — following three consecutive quarters of contraction — has come sooner than many analysts had expected, boosted by government stimulus and looser monetary policy from the Federal Reserve. As recently as the start of 2021, analysts had been expecting fourth-quarter revenues to drop 1.4 per cent.

The figures take in the more than 70 per cent of companies within the index that have already released their quarterly results, as well as Wall Street estimates for those businesses yet to report.

Analysts are now pencilling in a 23.3 per cent rise in earnings per share for S&P 500 companies this year, following the 12 per cent collapse in 2020. And sales for S&P companies are projected to jump 16 per cent to more than $12tn, with fast growth expected in the industrials, consumer discretionary and materials sectors as the economy recovers.

“We think this year we have the potential to see growth that is very well above the trend line,” said Nancy Prial, co-chief executive and senior portfolio manager at Essex Investment Management.

Investors have been closely following the wrangling on Capitol Hill about a proposed $1.9tn spending package that could provide a powerful additional economic stimulus. The rollout of coronavirus vaccines is also seen as critical to the prospects of hard-hit businesses, including airlines, hotel operators and energy companies that struggled for much of last year with depressed demand for energy as the world locked down.

Strategists expect the recovery to strengthen in the coming months. “In a way, we’re almost likely to have come full circle in 15 [or] 16 months from the end of February, when markets peaked,” said Esty Dwek, head of global market strategy at Natixis Investment Managers.