NEW YORK (Reuters) – Investors will be eager to see if US companies’ quarterly reports and future prospects validate expectations for a strong recovery in revenue and the economy in 2021, which was devastated by the coronavirus pandemic last year.
US stocks are at record levels, largely fueled by optimism that the launch of COVID-19 vaccines will allow this recovery, while hopes of a greater fiscal stimulus under US President-elect Joe Biden have also supported the market. .
Earnings reports for the last quarter of 2020 begin this week with the release of results from JP Morgan, Citi and other large banks.
Earnings for S&P 500 companies are expected to fall 9.8% in the fourth quarter from a year ago, according to IBES data from Refinitiv.
But earnings are expected to return this year, with a 16.4% gain projected for the first quarter. This forecast has improved since the autumn, while S&P 500 earnings will increase by 23.6% in 2021, benefiting from easy comparisons with 2020.
Investors may be even more eager to learn what the company’s executives are saying about 2021 than to see fourth-quarter results, which appear as virus cases are on the rise in the United States and Europe.
“Leaders and analysts will not really focus on the rearview mirror. They are really thinking about 2021, ”said Kenneth Leon, research director at CFRA Research.
What will also be key is “the pulse of each sector and how it affects investors in terms of whether there is attractive value there or whether they may need to breathe,” Leon said.
The S&P 500 trades at 22.7 times long-term gains, well above the long-term average of about 15, based on Refinitive data.
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“The stock is already reflecting a pretty positive outlook for earnings,” said Rick Meckler, a partner at Cherry Lane Investments, a family investment firm in New Vernon, New Jersey.
Earnings for the energy and industrial sectors are expected to have fallen the most of all sectors in the fourth quarter.
While economically sensitive sectors, such as those that have outperformed the broader market in recent months, remain in technology for 2020, and their assessments are generally seen by some as less expensive than other sectors. .
Much of the cyclical names fall under the “value” label, and investors have been following the Russell 1000 index, which is narrowing the gap in the Russell 1000 growth index following optimistic news about the vaccine.
With cases of the virus on the rise, many strategists expect greater recovery to take place in the second half of the year.
“In the second half, the outlook is likely to grow as corporations gain clarity and, ultimately, confidence,” Lindsey Bell, chief investment strategist for Ally Invest, wrote on Friday.
However, the uncertainty surrounding the recovery makes obtaining information from companies even more critical at this stage, even if it is not a “formal” approach, said Quincy Krosby, chief market strategist at Prudential Financial in Newark. New Jersey.
“This is important for a market eager to turn the corner,” after a difficult year, she said.
Reporting by Caroline Valetkevitch; additional reporting by Lewis Krauskopf; Editing by Alden Bentley and Cynthia Osterman