This week the key Q1 Earnings season kicks off in earnest with many of the major US banks reporting. Q1 earnings are seen as key for setting the tone of company performances as the post-pandemic timeframe gains momentum as the vaccination rate continues to climb and states continue to open up. Overall the US equity markets closed at all-time highs again last week, with a strong close on Friday just shy of those inter-day highs. The USA500 closed at 4,123, the USA100 at 13,800 and the USA30 at 33,751.
The Financial sector has been a major beneficiary of the “reflation” trade and the $1.9 trillion Stimulus Bill and the proposed $2.25 trillion Infrastructure Bill, which are all likely to benefit the banking sector in particular. So far 20 of the S&P 500 companies have reported and on average they have beat expectations by 11%, which is over 1.5 times above their average over the last 3 years. Overall expectations for the S&P 500 is for Q1 Earnings to grow by a very significant 25%, which would be the best performing quarter since President Trump’s tax cut inspired Q1 2018. Additionally, what is more encouraging is that estimates have been rising as the Earnings Season arrives; normally they start to decline as the data starts to emerge. Back in late February/early March consensus was for 22% Q1 growth. This enthusiasm is tempered by the high valuations the S&P500 is running currently; forward earnings are currently projected at 22.3 times whereas in a normal economic cycle the historical average is 15 times earnings, hence the scepticsim over further growth from here. However, overall 2021 earnings growth remains very robust and is penciled in at 26.5% versus a -12.6% decline for 2020. Another key drag on future growth in 2021 is President Biden’s proposed increase in Corporation Tax to 28% from 21%; estimates suggest that this could reduce earnings by 7.4% for 2021.
Earnings season kicks off significantly tomorrow, (April 14) with big banks leading the charge. Reports are due from JP Morgan Chase, Goldman Sachs, Wells Fargo and First Republic Bank. Later in the week there will be data from Bank of America, Citigroup, BlackRock, U.S. Bancorp, Truist Financial, Morgan Stanley, HDFC Bank, PNC Financial, Bank of New York Mellon, State Street, Citizens Financial, Ally Financial.
Whatever the outcome, much is anticipated from the numbers and tomorrow (April 14) JP Morgan are first up at 12:00 GMT with expectations of an Earnings per share (EPS) of $3.10 and revenues increasing 5% to $30.10 billion, this is followed by Goldman Sachs at 12:25 GMT with consensus numbers of an EPS at $9.79 and revenues also up to $11.71 billion and also before the bell tomorrow is Wells Fargo at 13:05 GMT with an expected EPS of $0.69 on revenues of $17.41 billion. Last time JPM and Goldman Sachs both beat on both revenue and EPS numbers significantly whilst Wells Fargo missed, disappointing the markets. All three key banks remain technically Bullish trading north of their respective 20-day moving averages. On Monday (April 12) JPM closed at $153.07, a few dollars shy of the March 18 high at $157.18, Goldman Sachs closed down 2% at $324, some $23 below the March 18 high, whilst Wells Fargo closed at $39.98 off 1.93% for the day and $0.89 below the close on March 18.
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Stuart Cowell
Head Market Analyst
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