It’s been a wonderful start to 2021, with 33 record highs through June 25th.
That’s the 3rd most in history, and the year isn’t quite half over yet.
Most stock indexes are having a great year, including the S&P 500 which is up almost 15% in the first half of 2021.
That’s after an 18% rally in 2020 (the pandemic year) and an epic 33% gain in 2019.
Well, there’s both good and bad news for investors hoping that JPMorgan’s start of the year forecast for a 25% return might come true.
We’re about to start Q2 earnings season, and there are four important facts about the best earnings season in 12 years, that investors need to know.
Fact 1: This Might Be The Fastest Earnings Growth You’ll Ever See In Your Lifetime
Normally going into earnings seasons analysts cut expectations by 2.1% to 3.7%. That’s why historically about 70% to 75% of companies beat expectations, and management teams appreciate the chance to feel smart.
Thanks to the historical nature of this pandemic, earnings expectations have been rising at an accelerating rate, and in Q1 nearly 80% of companies still beat by an average of 23%.
A record number of companies are also raising their guidance going into Q2 earnings which kick off in earnest in about a month.
For Q2 analysts are now estimating 63% EPS growth, which would be the best earnings growth since Q4 2009’s 109%.
It would likely be the strongest earnings growth any of us is likely to see in our lifetimes moving forward.
Fact 2: The Earnings Bonanza Is Expected To Continue Into 2022 And Beyond
|Year||EPS Consensus||YOY Growth|
(Source: FactSet Research)
This year’s epic 40% EPS growth is expected to be followed by a very strong 11% growth in 2022.
2023’s 7% would still be above the market’s 5-year average of 4%, and 6.4% the market has historically delivered.
Better yet, according to the bottom-up consensus forecast, over the long-term, the S&P’s earnings are expected to grow at a very robust 8.5%.
(Source: FAST Graphs, FactSet Research)
That would be similar to the growth rate of the last 18 years and might be realistic if big tech continues to make up a larger and larger portion of the overall market.
The top 10 companies, AAPl, MSFT, AMZN, FB, GOOG, TSLA, BRK.B, JPM, JNJ, and V generate 30.5% of earnings and makeup 28.5% of the overall market.
Their long-term growth consensus estimates are all over 8.5%, indicating that if they grow as expected, it’s possible the market’s earnings growth rate will keep accelerating in the future, at least for the next 10 to 20 years or so.
That’s the good news, but in part two of this series, I’ll explain why it’s important for investors to be careful about what they’re buying in this earnings growth bonanza, both for the rest of this year and well into 2022 and 2023.
SPY shares were trading at $427.87 per share on Tuesday afternoon, up $0.40 (+0.09%). Year-to-date, SPY has gained 15.19%, 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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