Every earnings season is important but this one especially so.

At the start of the year, JPMorgan predicted the S&P 500 could rally as much as 25% in 2021. Goldman predicted it would take 2 years for the market to go up 25% after an 18% rally in 2020.

That rally, by the way, was after a 30% rally in 2019, which followed the single worst year for stocks in a decade, a modest 4% decline.

Basically, stocks have been on a tear for many years. And yet, so far, even the lowly Nasdaq, is on track to surpass JPMorgan’s bullish forecast at the start of the year.

Most other indexes are on track for 30% to 40% or even greater 2021s.

Of course, that assumes that the pandemic recovery, the strongest economy in 36 years, and monster earnings growth all show up as planned.

So here are the three most important facts you need to know about this historic earnings season. One that could determine whether Wall Street falls out of bed, or has the best year in over three decades.

Fact 1: Q1 Earnings Season Is Off To A Great Start

For Q1 2021 (with 9% of the companies in the S&P 500 reporting actual results), 81% of S&P 500 companies have reported a positive EPS surprise and 84% of S&P 500 companies have reported a positive revenue surprise. ” – FactSet Research

In most quarters analysts hack away at earnings expectations in the final weeks before earnings season begins. This is why 73% of companies historically beat expectations by modest 3% to 5% amounts.

Basically, analysts use management guidance to estimate growth that’s relatively accurate, then cut that outlook right before management delivers the previously expected growth.

And just like that Wall Street is awash in companies beating on the top and bottom line. Management looks smart, investors usually see stock prices go up, and everyone is happy.

But this pandemic is unique. Just as tax cuts in 2017 caused earnings expectations to keep rising for six months, the end of the pandemic, combined with $6 trillion (and counting) in fiscal stimulus, has analysts racing to hike EPS growth expectations for several months now.

FactSet reports we’re on track for +30.2% EPS growth, the strongest in a decade.

The hardest-hit sectors of the pandemic are the earnings growth superstars of 2021.

But as great as a single year of fantastic growth is, the news gets even better. Analysts aren’t just expecting a massive earnings boom in 2021, but also in 2022, 2023, and possibly beyond.

Fact 2: This Is Expected To Be Just The Start Of An Earnings Growth Super Cycle

JPMorgan CEO Jamie Dimon recently wrote in his annual shareholder letter that he believes that the economic boom could last “well into 2023.”.

Based just on the $6 trillion in stimulus passed so far, one of the best bank CEOs on earth is expecting very strong growth for several years.

(Source: FactSet Research Terminal)

The median FactSet consensus is for 6% growth in 2021, 4% in 2022, and then back to historical 2% growth starting in 2023.

(Source: FactSet Research Terminal)

However, note that just like earnings growth expectations, GDP estimates have been rising at a rapid and steady pace.

In fact, back in March, before the $1.9 trillion ARP stimulus passed, 2021 growth estimates were just 2%.

They have literally tripled in two months. Bank of America and Moody’s, two blue-chip economists (among the most accurate 16 in the world according to Market Watch) expect the $2.3 trillion infrastructure bill could have a massive short-term boost to growth in 2022 and 2023.

The $2 trillion human capital proposal, that’s part of the $4.3 trillion super package Democrats want to get passed by election day 2022, BAC and Moody’s think will drive stronger long-term growth, but that likely will take several years to ramp up.

There’s also one final wild-card stimulus, which is President Biden apparently checking the legality of forgiving up to $50,000 in Federal student loan debt.

Bloomberg estimates that this would represent another $1 trillion in stimulus if it happens.

The bottom line is that on top of the $6 trillion in stimulus we’ve seen no far, there is the potential for another $5.3 trillion that could be arriving in the next few years.

Of course, passing two mega-bills like that is far from guaranteed. But the potential for economic growth forecasts to keep rising for several more years is very exciting for an econ nerd such as myself.

How does that translate into corporate earnings growth? In several potentially exciting ways.

As part of my job at Wide Moat Research, I monitor the market’s forward valuations and earnings expectations daily.

(Source: Dividend Kings S&P 500 Valuation & Total Return Tool)

Every single day the FactSet bottom-up EPS growth consensus estimates are rising. Usually not by much, but it’s been months since we haven’t seen a healthy 0.3% to 0.5% weekly increase.

From 2020 through 2023 earnings are now expected to grow by 60%, or 17.1% CAGR. That’s by far the best earnings growth in a decade.

And if more stimulus gets passed, almost doubling what’s already been passed into law, then potentially 2024 and 2025 growth could also be high-single digits or even double-digits.

Basically, we potentially face the start of an earnings growth super-cycle unlike any seen since the tech boom of the 1990s.

In part 2 of this series, I’ll explain the smart way investors can protect their monster gains from recent years, while potentially locking in market-crushing returns for years to come.

SPY shares were trading at $415.97 per share on Thursday morning, down $0.10 (-0.02%). Year-to-date, SPY has gained 11.62%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Adam Galas

Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles. More...

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