US March quarter reports start in earnest from this week as the six major banks due to release their latest figures, with analysts confidently forecasting a strong rebound in profits from the Covid-hit March quarter of 2020.
According to Reuters overall S&P 500 first-quarter earnings are expected to jump 25% from a year ago, according to Refinitiv forecasts. That’s up from a 22% rise estimate a month ago.
While that would be the biggest quarterly gain since 2018, when tax cuts under former President Donald Trump drove a surge in profit growth, the reality is that the rise will be from a quarter feeling the early impact of Covid.
That’s why earnings for the current June quarter will see even larger gains from a year ago when reporting starts in mid July. Some analysts see the eventual outcome for the March quarter to show much bigger rises than early forecast.
The 20 S&P 500 companies that reported earnings as of Thursday topped analyst estimates by 11% on average,
Wednesday sees JPMorgan Chase, Well Fargo and Goldman Sachs reporting their March quarter figures, followed on Thursday by Bank of America, Citi and on Friday Morgan Stanley is expected to release its figures.
Other banks reporting include Bank of New York Mellon, PNC and US Bancorp.
Other S&P 500 majors down to release this week include Delta, Pepsi Co, Alcoa and Rite Aid (drug store group).
Reuters says financials are expected to show one of the biggest earnings gains, up 75.6% year-on-year, while materials are seen up 45.4%.
Wall Street is now much higher than it was a year ago (when the pandemic slump bottomed out on March 22 and 23).
The S&P 500 is up around 80% in the past year, rally driven by unprecedented government and Federal Reserve stimulus measures and growing expectations that widespread vaccinations against COVID-19 will spur an economic rebound.
Financials were one of the best performers in the first quarter, with the S&P financial index up 15%, while the energy sector led S&P 500 sector gains in the first quarter, rising 29%.
Technology, 2020’s star, was one of the worst-performing sectors, rising just about 2% in the quarter.
Investors should watch for comments in earnings statements on this stimulus spending, the vaccinations rollouts and on the plans by President Biden for a huge multi-year infrastructure spend to be financed in part by higher corporate taxes.
Biden plans to raise the US corporate tax rate to 28% (among a raft of loophole closing measures as well) from the 21% levy set by the Trump administration’s 2017 tax bill, which had previously been a support for stocks.
According to analysts at UBS in New York, S&P 500 earnings could take a 7.4% hit from the proposed tax plan, including the higher corporate rate.
Before any impact from that possible hike, analysts say S&P 500 2021 earnings growth is expected to be a rise of 26.5% versus a fall of 12.6% in 2020.
