By Caroline Valetkevitch
NEW YORK (Reuters) – Investors look ahead to U.S. corporations’ upcoming quarterly results and projections of recovery for the second half of 2021 as some fear the recent economic upturn is already fading.
US Treasuries rallied this week on fears that economic growth could slow in the second half of the year, pushing yields to levels not seen since February. On the stock market, financial, energy and other so-called value stocks were sold off in connection with the recovery.
A massive surge in earnings in the second quarter is expected to mark a peak in US earnings growth and a recovery from last year’s pandemic-induced earnings slump. According to Refinitiv’s IBES data, the S&P 500’s earnings are estimated to have increased 65.8% year over year.
This is well on the way to being the largest percentage growth since the fourth quarter of 2009 following the Great Financial Crisis, according to Refinitiv’s IBES data.
As of Tuesday, earnings reports from JPMorgan Chase, Goldman Sachs, Bank of America and other major banks are due to open quarterly results. They could provide early clues about the economy and growth-linked stocks.
Most major US banks are expected to report a strong rebound in quarterly earnings even if trading revenues plummet and revenues stall due to low interest rates and weak demand.
Investors are also excited to see if earnings will support Wall Street’s surge, with the S&P 500 up about 16% year-to-date. Many market watchers say the expected earnings surge this year is a major reason for the market’s strong performance.
However, this week’s weaker-than-expected report on U.S. jobless claims and the spread of the Delta Coronavirus variant added to investor questions about the reopening of the economy.
“What investors want to see for this earnings season, and what we expect, is that the earnings trend on the value side is still intact to support (the view) that it is too early to get out of this trade. And that starts next week with the banks, ”said Keith Lerner, chief market strategist at Truist Advisory Services.
Many investors, including Lerner, remained bullish on cyclical sectors such as energy, finance and industrials, which are considered value trades due to years of underperformance. The S&P 500 Value Index is falling this week. Over the same period, the S&P 500 growth index – known for companies with upside momentum – is higher, reflecting progress in technology stocks, fueled by the decline in benchmark 10-year bond yields.
Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas, Texas who likes energy, commodities, restaurants and some retailers, said while the picture isn’t perfect for all companies, the reporting season should confirm the strength of the economy.
“It’s not 100% rosy,” he said, but “we would expect an extremely strong result so we are optimistic about the market.”
Among the sectors, industrials, consumer discretionary, energy and basic materials are expected to generate the largest year-over-year earnings gains, with industrials up more than 500% based on data from Refinitiv.
Earnings estimates for the second quarter are likely still too low, Nicholas Colas, co-founder of DataTrek Research, wrote in a note this week.
As a result, estimates for 2021 overall and for 2022 “should continue to rise when we get financial reports for the second quarter,” and this could give investors more confidence that earnings should support the market for the next year, he wrote.
Also on the radar will be what companies are doing to pass on price hikes they may be struggling with in commodities, said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. There have been signs of this pressure in economic data over the past few months.
Other companies to report next week include Delta Air Lines, UnitedHealth Group, and Kansas City Southern.
(Reporting by Caroline Valetkevitch; additional reporting by Lewis Krauskopf; editing by Alden Bentley and David Gregorio)
These items was originally published on FX Empire