Although earnings of S&P500 companies are expected to have dipped in the fourth quarter of 2020, those that have already reported have “trounced estimates to such an extent that the fourth-quarter tally is on track to exceed the per-share figure from the same period in 2019.” This according to a recent article in Bloomberg.
The article points out that this development would “halt a streak of contracting profits that reached two quarters as pandemic-fueled restrictions devastated large parts of Corporate America,” adding that many companies rushed to cut costs and accommodate stay-at-home protocols.
A rapid earnings recovery would comfort bulls betting on an economic rebound amid the ongoing vaccine rollout, the article notes. It offers comments from DataTrek Research co-founder Nick Colas who argues, “Wall Street expectations are too low for Q4 2020, so we should see plenty of [earnings] beats. We need them.”
The article contends that if the pace of strong earnings surprises continues, the S&P 500’s per-share profits would end up eclipsing the level reached in the fourth quarter of 2019. It concludes, “Better-than-estimated results are likely to set the stage for expectations to improve for this year and next, potentially making the S&P 500 look less expensive.”