S&P 500 Earnings Season Update: July 23, 2021

At this point in time, more S&P 500 companies are beating EPS estimates for the second quarter than average, and beating EPS estimates by a wider margin than average. As a result, the index is reporting higher earnings for the second quarter today relative to the end of last week and relative to the end of the quarter. The index is currently reporting the highest year-over-year growth in earnings since Q4 2009. Analysts also expect double-digit earnings growth for the second half of 2021. These above-average growth rates are due to a combination of higher earnings for 2021 and an easier comparison to weaker earnings in 2020 due to the negative impact of COVID-19 on a number of industries.

Earnings Continue to Beat Estimates

Overall, 24% of the companies in the S&P 500 have reported actual results for Q2 2021 to date. Of these companies, 88% have reported actual EPS above estimates, which is above the five-year average of 75%. If 88% 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 19.0% above estimates, which is also above the five-year average of 7.8%. If 19.0% is the final percentage for the quarter, it will mark the fourth-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 index is reporting higher earnings for the second quarter today relative to the end of last week and relative to the end of the second quarter. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the second quarter is 74.2% today, compared to an earnings growth rate of 69.4% last week and an earnings growth rate of 63.2% at the end of the second quarter (June 30). Positive earnings surprises reported by companies in multiple sectors (led by the Financials, Health Care, Information Technology, and Communication Services sectors) were responsible for the improvement in overall earnings for the index during the past week. Positive earnings surprises reported by companies in the Financials sector (led by Bank of America, JPMorgan Chase, Goldman Sachs, Wells Fargo, Citigroup, and Capital One Financial) have been the top contributors to the overall increase in earnings for the index since the end of the second quarter.

If 74.2% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth reported by the index since Q4 2009 (109.1%). The unusually high growth rate is due to a combination of higher earnings in Q2 2021 and an easier comparison to lower earnings in Q2 2020 due to the negative impact of COVID-19 on a number of industries. All 11 sectors are reporting year-over-year earnings growth, led by the Energy, Industrials, Financials, Consumer Discretionary, and Materials sectors.

Revenues Are Also Coming in Ahead of Estimates

In terms of revenues, 86% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 65%. If 86% 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 4.0% above the estimates, which is also above the five-year average of 1.2%. If 4.0% 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 positive revenue surprises, the blended revenue growth rate for the second quarter is higher now relative to the end of last week and relative to the end of the second quarter. As of today, the S&P 500 is reporting year-over-year growth in revenues of 20.9%, compared to year-over-year growth in revenues of 20.2% last week and year-over-year growth in revenues of 19.4% at the end of the second quarter (June 30). Positive revenue surprises reported by companies in multiple sectors (led by the Health Care, Communication Services, Energy, and Financials sectors) were responsible for the increase in overall revenues for the index over the past week. Positive revenue surprises reported by companies in the Financials, Energy, and Health Care sectors have been the largest contributors to the increase in the overall revenues for the index since the end of the second quarter.

If 20.9% is the actual growth rate for the quarter, it will mark the highest year-over-year revenue growth rate reported by the index since FactSet began tracking this metric in 2008. All 11 sectors are reporting year-over-year growth in revenues, led by the Energy, Materials, and Consumer Discretionary sectors.

Looking at future quarters, analysts also project double-digit earnings growth for the remaining two quarters of 2021.

The forward 12-month P/E ratio is 21.3, which is above the five-year average and above the 10-year average.

During the upcoming week, 180 S&P 500 companies (including 10 Dow 30 components) are scheduled to report results for the second quarter.

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