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Sectors Expected to Outperform this Earnings Season

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The expected Q3 earnings growth has started going up as companies come out with better than expected quarterly results. As of October 21st, the expectation is for Q3 earnings for the S&P 500 index to increase by +31.5% from the same period last year on +14.3% higher revenues. This is up from the roughly +26% earnings growth expected at the start of the reporting cycle.

With respect to the scorecard, we now have Q3 results from 100 S&P 500 members or 20% of the index’s total membership. Total earnings for these 100 index members are up +45.3% from the same period last year on +16.6% higher revenues, with 87% beating EPS estimates and 75% beating revenue estimates.

Both the growth rates as well as the beats percentages are tracking below what we had seen from this group of 100 index members in the preceding quarter (2021 Q2), but otherwise above historical averages. The Q2 earnings season represented a high-water mark in many respects, including the growth rate when earnings roughly doubled from the year-earlier level. A big part of the very high growth rates in Q2 was easy comparisons to the year-earlier period when corporate profitability was hit hard by the Covid lockdowns.

Earnings growth in Q3 and beyond represent a significant deceleration from the first-half’s high pace, but it is nevertheless positive and favorable. Estimates for the current period (2021 Q4) have started nudging up, which represents an improvement over what we had seen in the comparable period last quarter. If sustained, this will be a notable positive development in the current environment of cost inflation and logistical problems.

For more details about the Q3 earnings season and evolving expectations for Q3 and beyond, please check out our weekly Earnings Trends report >>> A Strong Earnings Picture Amid Global Headwinds

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