Investors look to upcoming U.S. earnings for a view in 2021

NEW YORK (Reuters) – Investors will be eager to see whether upcoming quarterly reports and the outlook for U.S. companies validate expectations of a strong rebound in earnings and the economy in 2021, which have been ravaged by the coronavirus pandemic Last year.

U.S. stocks have hit record highs, largely fueled by optimism that the deployment of vaccines to fight the COVID-19 virus will allow this recovery, while hopes for more fiscal stimulus under U.S. President-elect Joe Biden have also supported the market.

Results reporting for the last quarter of 2020 begins this week, with the release of results from JP Morgan, Citi and other major banks.

S&P 500 company profits are expected to have fallen 9.8% in the fourth quarter from a year ago, according to IBES data from Refinitiv.

But profits are expected to rebound this year, with a 16.4% gain expected in the first quarter. This forecast has improved since the fall, while S&P 500 earnings are expected to grow 23.6% in 2021, benefiting from easy comparisons to 2020.

Investors may be even more eager to know what company executives are saying about 2021 than they are to see fourth quarter results, which come as virus cases increase in the United States and in Europe.

“Management and analysts are really not going to necessarily focus on the rearview mirror. They are really thinking about 2021, ”said Kenneth Leon, research director at CFRA Research.

What will also be critical is “the pulse of each sector and how it affects investors in terms of whether there is good value out there or if they might need to. take a break, ”Leon said.

The S&P 500 is trading at 22.7 times forecast earnings, well above the long-term average of around 15, according to data from Refinitiv.

(GRAPHIC – US earnings for Q4 🙂

“The stocks are already reflecting a rather positive outlook for earnings,” said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

Profits in the energy and industrials sectors are expected to have fallen the most of any sector in the fourth quarter.

Although economically sensitive sectors such as these have outperformed the market as a whole in recent months, they are still lagging behind in technology for 2020, and their valuations in general are seen by some to be less expensive than d ‘other sectors.

Much of the cyclical name falls under the “value” label, and investors watched the Russell 1000 Stock Index close the gap on the Russell 1000 Growth Index following bullish vaccine news.

With cases of the virus continuing to rise, many strategists expect the biggest recovery to be in the second half of the year.

“Most likely, the outlook for the second half of the year will increase as businesses gain clarity and confidence,” Lindsey Bell, chief investment strategist for Ally Invest, wrote in a report Friday.

Still, the uncertainty surrounding the recovery makes getting information from companies even more critical at this point, even if it is not a “formal” direction, said Quincy Krosby, chief strategist. market at Prudential Financial in Newark, New Jersey.

“It’s important for a market that is keen to take the leap,” after a difficult year, she said.