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S&P 500 Earnings Season Update: January 22, 2021

Written by John Butters | Jan 22, 2021

At this point in time, more S&P 500 companies are beating EPS estimates for the fourth quarter than average, and beating EPS estimates by a wider margin than average. As a result, the index is reporting higher earnings for the fourth quarter today relative to the end of last week and relative to the end of the quarter. Despite the increase in earnings, the index is still reporting a year-over-year decline in earnings, mainly due to the negative impact of COVID-19 on a number of industries within the index. But, if earnings continue to surpass estimates at current levels, it is likely the index will report year-over-year earnings growth for the quarter for the first time since Q4 2019.

Positive Earnings Surprises

Overall, 13% of the companies in the S&P 500 have reported actual results for Q4 2020 to date. Of these companies, 86% have reported actual EPS above estimates, which is above the five-year average of 74%. If 86% is the final percentage for the quarter, it will mark the highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. In aggregate, companies are reporting earnings that are 22.4% above the estimates, which is also above the five-year average of 6.3%. If 22.4% is the final percentage for the quarter, it will mark the second-largest earnings surprise percentage reported by the index since FactSet began tracking this metric in 2008.

Due to the number and magnitude of these positive EPS surprises, the blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the fourth quarter is smaller now relative to the end of last week and relative to the end of the quarter. As of today, the S&P 500 is reporting a year-over-year decline in earnings of -4.7%, compared to a year-over-year decline in earnings of -6.7% last week and a year-over-year decline in earnings of -9.2% at the end of the fourth quarter. Positive earnings surprises reported by companies in the Financials and Information Technology sectors were mainly responsible for the decrease in the overall earnings decline during the past week. Positive earnings surprises reported by companies in the Financials sector (led by JPMorgan Chase, Goldman Sachs, Citigroup, and Morgan Stanley) have also been mainly responsible for the decrease in the overall earnings decline since the end of the fourth quarter.

If -4.7% is the actual decline for the quarter, it will mark the fifth-largest (year-over-year) decline in earnings reported by the index since Q3 2009. It will also mark the fourth straight quarter and the seventh time in the past eight quarters in which the index has reported a year-over-year decline in earnings. Five sectors are reporting year-over-year earnings growth, led by the Financials, Materials, and Health Care sectors. Six sectors are reporting (or are predicted to report) a year-over-year decline in earnings, led by the Energy, Industrials, and Consumer Discretionary sectors.

Revenues Beating Estimates

In terms of revenues, 82% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 62%. If 82% is the final percentage for the quarter, it will mark the highest percentage of S&P 500 companies reporting a positive revenue surprise since FactSet began tracking this metric in 2008. In aggregate, companies are reporting revenues that are 3.0% above the estimates, which is also above the five-year average of 0.9%. If 3.0% is the final percentage for the quarter, it will mark the largest revenue surprise percentage reported by the index since FactSet began tracking this metric in 2008.

Due to the number and magnitude of these revenue surprises, the blended revenue growth rate for the fourth quarter is higher now relative to the end of last week and relative to the end of the fourth quarter. As of today, the S&P 500 is reporting year-over-year growth in revenues of 0.7%, compared to year-over-year growth in revenues of 0.4% last week and year-over-year growth in earnings of 0.1% at the end of the fourth quarter. Positive revenue surprises reported by companies in the Financials and Information Technology sectors were mainly responsible for the increase in the overall revenue growth rate during the past week.

If 0.7% is the actual growth rate for the quarter, it will mark the first time the index has reported year-over-year revenue growth since Q1 2020. Six sectors are reporting (or are projected to report) year-over-year growth in revenues, led by the Health Care and Consumer Discretionary sectors. Five sectors are reporting (or are predicted to report) a year-over-year decline in revenues, led by the Energy and Industrials sectors.

Looking at future quarters, analysts project earnings growth to return starting in Q1 2021 (18.1%).

The forward 12-month P/E ratio is 22.5, which is above the five-year average and above the 10-year average.

During the upcoming week, 118 S&P 500 companies (including 13 Dow 30 components) are scheduled to report results for the fourth quarter.

Listen to Earnings Insight on the go! In our weekly Earnings Insight podcast, John Butters provides an update on S&P 500 corporate earnings and related topics based on his popular Earnings Insight publication. The podcast is made available every Monday—listen on Apple podcasts, Spotify, or factset.com.