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The third quarter reporting season in the US began last week and will continue until the middle of November. The big banks which are traditionally among the first to report, got us off to a flying start. Not only have their numbers turned out to be stronger than expected, but managements have also provided reassuring comments about trends in core banking activities that have been muted in recent quarters. Moreover, the group’s investment banking businesses, were particularly strong, offsetting tough comparisons on the trading front.
This week’s results line-up extends beyond the finance sector and includes reports from more than 200 companies, including 73 S&P 500 members. These should provide us with a better picture of corporate America and more insight on the most important issues weighing on earnings at present, namely inflationary trends and developments on the logistics and supply-chain front.
Overall, analysts are estimating another relatively robust quarter for profit growth even though the pace is expected to decelerate significantly from the first half’s breakneck pace. According to data obtained from US financial data group FactSet, earnings growth for the third quarter is expected to be just shy of +30% on revenue growth of roughly +15%, which would mark the third highest annualised earnings growth reported by the S&P constituents since 2010. In the run-up to the reporting, 60% of U.S. companies have issued positive EPS guidance, which is well above the 5-year average of 33%.
Analysts also expect earnings growth of more than +20% for the fourth quarter and earnings growth of more than +40% for the full year. These above-average growth rates are due to a combination of higher earnings for 2021 and an easier comparison to weaker earnings in 2020 due to the negative impact of Covid-19 on a number of industries.
As has been the case in recent quarters, the strongest growth is expected to come from cyclical stocks, that have benefitted from the ongoing reopening of the US economy, with Industrials and Materials forecast to deliver the strongest EPS growth. At the other end, consumer stocks are tipped to underperform relative to the rest of the market, with consumer discretionary EPS projected to contract.
Rising cost pressures amid supply-chain disruptions and labour and material shortages will keep the spotlight on margins, which are expected to be up year-over-year as well as sequentially in the third quarter. The margins trajectory over the coming periods is a key source of uncertainty in the earnings outlook given the lack of visibility with respect to the duration of inflationary pressures.
Confronted by what many in financial markets have referred to as a “wall of worry”, the S&P 500 has trended mostly lower in recent weeks, as the combined effects of fears about slowing growth, supply disruptions and inflationary pressures, tighter monetary policy and Chinese financial instability have weakened sentiment. This earnings season should allow investors to return to company fundamentals, to quantify the material impacts of these macroeconomic factors, and discount how they might influence corporate earnings in the future.
Disclaimer: This article was written by Stephen Borg, Head of Private Clients at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.
For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.
The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Similarly, any views or opinions expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the particular circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views, or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. CC does not accept liability for losses suffered by persons as a result of information, views, or opinions appearing on this website.
Calamatta Cuschieri Investment Services Ltd is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act.
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