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Summary
- Combined earnings of Tech companies, reported so far, were up by about 20%.
- Walmart, Shopify, Deere & Co., & Applied Materials to file earnings reports this week.
- Most companies have reported better-than-expected EPS or exceeded revenue projections.
As one-third of the fourth-quarter earnings season already behind us, markets would be looking forward to ending the remaining period with a positive note. Most of the big companies, at least on the heavyweight S&P 500 index, have either beaten EPS forecast or trounced revenue estimates.
The results have surprised some analysts who had warned not to have high expectations due to the extensive COVID disruptions in the markets. Surprisingly, though, the revenues were up by nearly three percent during the reporting period compared to the same quarter a year ago.
Some 80 percent of the big 370 companies, which have already reported, beat EPS expectations, while around 77 percent of them, have proved revenue forecast wrong, according to an estimate.
Analysts were hoping the growth cycle to start when the COVID cloud would lift, at least not before the first quarter of 2021, but it came early. Given that the reported companies together account for 80 percent of the market capitalization, the results can be interpreted as an overall earnings picture.
The latest cycle proved to be better than the previous one in 2019. Further, there are still scores of companies left, including the 48 S&P 500 members, to present their earnings reports over the next few weeks, mainly from the traditional brick-and-mortar retail space.
Some of them included Walmart (WMT), Shopify (SHOP), Deere & Co. (DE), and Applied Materials (AMAT), which are expected to present their earnings reports this week.
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Walmart stocks (NASDAQ:WMT) have slipped by around 2 percent in the last 30 days, but the company appeared more robust now than it was in the first half of 2020. It has improved its online delivery and started a subscription scheme on the lines of Amazon, which combined is expected to help register a better return in Q4. Shopify stocks (NASDAQ:SHOP) have surged in recent months, backed by robust holiday sales. It is likely to have a positive bearing on its Q4 earnings.
However, what is rallying the positive trend in the markets is that most companies are also providing reassuring direction to investors. This trend is likely to gain momentum in the coming weeks.
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Q4 Leaders
Sectors that stand out included technology, finance, construction, and basic materials. For instance, the tech companies have reported over 20 percent revenue growth compared to the same period in 2019. Some have reported better-than-expected EPS, while others exceeded revenue projections.
Experts estimate that the combined earnings of the S&P 500 companies reported so far and those yet to report in Q4 could go up by around 2.9 percent, reflecting the switch to a growth cycle after three consecutive quarters of decline for the index.
Overall, sectors that have reported successive declines, or likely to report losses, represented transportation, energy, consumer discretionary, and aviation. On the other hand, sectors that have reported revenue growth, or have reached a breakeven point, included autos, construction, basic materials, finance, technology, healthcare, and retail.
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As these trends suggest markets are expected to see positive growth in 2021, provided the macroeconomic situation improves further in the coming quarters. The government’s efforts to secure the COVID vaccine supplies along with the economic stimulus plan would help accelerate the recovery.
