Investors Gear Up for Blowout Earnings Season - July 20, 2021

Investors are looking at Q2 earnings season with very high expectations.

According to Refinitiv, S&P 5001 profits are forecast to rise an astounding 73% versus one year ago (for companies that have reported Q2 profits through July 19; the forecast is subject to change).

The reason: we are comparing strong economic growth in Q2 versus one year ago, when lockdowns disrupted the economy and corporate profits. 

What we know

The current forecast of 73% compares with the July 1 forecast of 65.4%, which means that on average companies are easily beating Wall Street estimates.

Over the last four quarters, companies have far exceeded profit forecasts. This is unusual, as most S&P 500 companies typically exceed analyst expectations by a modest amount.

Longer-term profit growth is a major contributor to gains in the stock market. Today’s strong numbers are supportive of equities, but markets are forward-looking, which means investors attempt to anticipate economic events six-to-nine months ahead.

Investor’s corner

Are today’s strong earnings reports already priced in by investors? While profit growth is expected to continue, it’s likely to slow from Q2’s gigantic pace.

Other questions include: will the Covid variants impact profits in some sectors?

Unknowns can create day-to-day volatility, tripping up investors who don’t have a long-term plan.

It’s why a comprehensive investment plan has historically been the best path to creating wealth and reaching one’s long-term financial goals.