US earnings: Analysts have rarely been so bullish

We are just a few days from the start of the US Q1 2021 earnings season 🥂 🎉

Our first chance to see how US companies have been performing this year and perhaps more importantly - how they view their prospects over the next 9 months...

That’s a period that will hopefully see an end to the full-blown pandemic and the start of a full-scale reopening of the US economy, although the exact look and feel of that post covid economy remain to be seen...

Wall Street analysts have been busy updating their models and forecasts, trying to work exactly how US businesses have performed over the quarter, looking for winners and losers among the various sectors, industries and companies.

For Q1 2021 the early omens appear to be good...

At the end of December 2021, S&P 500 earnings were expected to grow by +15.8% over the first quarter of 2021, according to the consensus among Wall Street analysts.

However, since the start of the year, the analysts have become more bullish and they are now forecasting earnings growth of +23.8% up by more than +50% compared to their own forecasts, as of the end of December.

Over the first three months of 2021, the S&P has risen by 7.0% and has moved above 4000 points for the first time.

So the question that investors must ask themselves now... just how much of the good news is in the price already?

Perhaps we can glean some insight from what S&P 500 companies have already said?

Well, guidance has been pretty thin on the ground during the pandemic but just under 20% of the index constituents have issued guidance for Q1, and roughly two-thirds of those companies were positive about their earnings outlook for the quarter...

Though earnings season doesn’t officially get going until the middle of April, 16 S&P 500 stocks have already reported Q1 2021 earnings...

Once again the omens are very positive: 14 of these companies posted a positive earnings surprise or beat...

Whilst 13 of them also managed to beat on revenues as well...

In fact, it’s fair to say that analysts have rarely been this positive about the earnings potential of the S&P 500 stocks and we haven’t seen such a large a rise in earnings forecasts as we have this quarter since at least 2004 👇

For most of the last 16 years analyst have tended to err on the side of caution and have cut their earnings forecast for the S&P 500 stocks for most quarters, over that 16 year period. So their current very bullish stance really stands out.

Banking on winners: Lipper analytics a division of Refinitiv, are suggesting that the Banks (which traditionally kick of earnings season), should set a positive tone and are looking for positives earnings surprises from Citi, JP Morgan, Goldman, Morgan Stanley and Citizens when they report over the coming week...

The table below shows us that the Lippers Starmine tool is predicting the biggest surprises from GS and Citi

The banking stocks won’t make or break this earnings seasons but they could certainly set the tone, particularly around expectations for trading over the balance of 2021....

A sector down view: If we look at the S&P 500 from a sector standpoint we find that seven out of eleven S&P 500 sectors are forecast to see an increase in earnings....

Only Consumer Staples and Industrials have seen negative revisions to earnings growth since the start of the year...

In 6 of these sectors, the increase in earnings is forecast to rise faster than the 5-year average earnings growth for the sector according to data from FactSet...

Two of these sectors saw their earnings forecasts grow at the fastest rates since the data was first recorded almost 20 years ago...

Energy and Information Technology are expected to be the star performers during this Q1 earning season...

The Energy sector received the biggest boost to its earnings forecasts, which rose by an astonishing +123.4% from  $1.14 per share to $2.55...

The previous biggest leap in earnings per share forecast had been +46.8%...

Energy stocks of course have been riding a wave of optimism over the last quarter and the S&P 500 sector is up by more than +32% year to date...

The Information Technology stocks received a respectable +9% upgrade to earnings forecasts which rise to $20.15 per share from $18.48 previously...

That was also the biggest quarter on quarter earnings estimate upgrade for the sector since records began...

Interestingly however Information Technology stocks have struggled in 2021 and have posted gains of just +3.90% year to date...

Overall there is a lot of expectation baked into Q1 2021 earnings particularly in the Energy sector which has already undergone significant gains... Technology stocks although forecast to have good earnings haven’t outperformed in 2021 so far...

On that basis alone might it be easy for the Energy sector and its constituents to disappoint the market and for the Information Technology sector to show that it’s been unjustly undervalued over the last three months...

Here's my list of large cap earnings to watch next week: