Earnings Compares Get Tougher in 2H ’21

During the pandemic lockdown in the first half of 2020, only three SP 500 sectors saw positive earnings and revenue growth for Q1 and Q2 ’20:

  • Technology
  • Health Care
  • Utilities

Data source: IBES “This Week in Earnings”

In 2015 or thereabouts, I started tracking actual quarterly results, versus constantly talking to readers about “estimates” and “consensus estimates” and while there are some columns hidden in the above spreadsheet, readers can see actual y/y growth rates of the SP 500 by sector for Q1, and Q2 ’20.

No question, Q2 ’21 will be the “zenith” for y/y growth rates, but also thrown in is Q3 ’20 actual to get provide perspective too.

In Q3 ’20 SP 500 revenue fell y/y by less than 1% and the US was still in the thick of Covid-19.

With the incredible returns for the “Big 5” in the SP 500 last year, check technology’s EPS and revenue growth for the first half of 2020, i.e. mid-single-digits.

In Q1 ’21, Technology has grown EPS and revenue 53% and 21% respectively, (with 3 weeks left in the quarter) and the sector has been dead money.

In what should be no surprise to readers, the easiest sector compares for Q2 ’21 will be Energy, Financials, Consumer Discretionary ( a lot of retail ex-Tesla and Amazon) and Real Estate.

This graph from Factset notes the record results expected in Q2 ’21, the best since Q4 ’09 (lapping Q4 ’08 obviously), but here is Factset’s numbers.

John Butter does a very good job with Factset’s earnings report every week. John is noting that the upward revisions to the Energy sector’s EPS growth is being driven by Exxon and Chevron. (No surprise to readers I’d expect.)

Tom Lee the great Fundstrat strategist and founder is wildly bullish on Energy, and he has been right as rain.

What’s puzzling to me is that Energy as a percentage of the SP 500 market cap is still just 3%. That percentage peaked at 14% – 15% August – September, 2014.

Because of Tesla I dont like Energy on a longer-term basis, thus i dont want to own it on a short-term basis and that’s been a wrong call in 2021, and the Energy stocks have been on fire all year.

Summary / conclusion: The goal of tonight’s blog was simply to add some perspective on 1H ’20 versus the expected 1h ’21. Expectations are very high for Q2 ’21 earnings for the Sp 500 if only from the very easy compares, but for some of the sectors like Energy and like Financials, the compares quickly get tougher for the back half of 2020.

Is any of this meaningful ? Hard to say. Once Q2 ’21 earnings start in mid-July ’21, I will be watching for blow-out results followed by very poor price or trading action, on the back of those results. We already saw that in Q1 ’21 as Bespoke has noted that despite some strong upside surprises in Tech and the Big 5, etc. stock price action has been “meh”.

Take everything you read and hear with substantial skepticism. None of this is advice. Writing this blog every week or a few times every week, helps keep me focused and doing the homework on earnings detail. Invest based on your own financial profile and appetite for volatility.

Thanks for reading.

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