March 23, 2020 marks the low point of the COVID-19 crisis for the markets. Since then, the indexes have posted impressive returns justified by the monetary and fiscal stimulus plans that have made up for the drop in activity caused by the lockdowns. Leading economic indicators show a strong recovery in the first quarter of 2021, so financial analysts have set the bar high in terms of expectations. Investor expectations must therefore materialize to continue to fuel the upside in equity markets.
For the first quarter of 2021, analysts expect to see revenue growth of 6.4% and profit growth of 24.5% for the S&P 500. For the full year of 2021, the market is forecasting for a 25.6% growth in earnings per share. One of the encouraging signs that lead us to think this season should be positive is the number of companies that are re-issuing guidance for the coming quarters (table present at the beginning of this article).
On the S&P 500, this number had fallen from 99 companies for Q4 2019 to 46 for Q1 2020. For Q4 2020, the number of companies that published their expectations was 94, a figure very close to the pre-pandemic levels. This element confirms that companies are regaining visibility on their activities and thus leads us to believe that the published results should match expectations.
With the S&P 500 showing a sustained rise since the start of the year, and given the high valuation of the markets today, it is crucial that this quarter’s results do not disappoint. Otherwise, we could see a new period of volatility