US Earnings Outlook

Marcus Tuck

Head of Research

8 am 15 September 2020

Quantitative Research

Based on the latest US consensus earnings forecasts from FactSet, it is likely that the June quarter of 2020 was the bottom of the US earnings cycle. With all companies in the S&P 500 index having reported their results for the June quarter, 84% of them reported a positive EPS surprise and 65% reported a positive revenue surprise. It was in fact the highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008.

This happened because the bar had been set so low in terms of expectations. Upgrades are happening for the next few quarters, which are expected to show sequential quarter-on-quarter growth (see chart below). However, year-on-year growth is not expected to turn positive until the March quarter of 2021. 

Analysts are forecasting calendar year 2021 to be a year of recovery for S&P 500 company earnings and revenue. As we highlighted in an earlier report, the Conference Board US Leading Economic Index has risen for the last three months in a row, consistent with the US economy having bottomed.

The chart below shows the consensus revenue growth forecasts for 2021 by sector. The sectors that saw the biggest declines in 2020 are generally the ones expected to record the biggest rebounds in 2021.

For the S&P 500 as a whole, revenue is forecast to grow by 8.1% in 2021 after an estimated 2.8% decline in 2020.

S&P 500 EPS is forecast to grow by 26.2% in 2021, after an estimated 18.4% decline in 2020. These forecasts will be subject to revision but the general trend is one of recovery in 2021.

There is of course a major event coming up on 3 November 2020 – the US presidential election, as well as elections for the US House of Representatives and the Senate.

Political pundits have an accuracy record similar to stock analysts. Nevertheless, the political forecasting group Politico currently expects Joe Biden to win the presidency, with the Democrats in a good position to retain control of the House. They consider the Senate race too close to call.

There is often a tendency to think that elections drive share markets however earnings and interest rates are far more important. The impact from elections tends to be transitory, even if this one ends up having more fireworks than usual. The important thing is that there be a clear result and acceptance of it.

With the US Federal Reserve and other world central banks still adopting highly accommodating monetary policies, and an earnings recovery looking likely for next year, the main drivers for equity markets remain supportive.

Marcus Tuck

Head of Research

Disclosure: Nil

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