Wall Street listed companies are set to bounce back strongly after the sharp 14.7% fall in earnings reported in the first quarter of 2020. Analysts at Wells Fargo estimate that S&P 500 earnings for the January-March quarter of 2021 will surge a massive 17.7%, helped by the low base. Meanwhile, sectors such as financials and material, among the hardest hit during the pandemic, are expected to lead the recovery. “From a historical perspective, earnings are expected to exceed consensus estimates, following a similar pattern to that set after the Great Financial Crisis,” Krishna Gandikota, Investment Strategy Analyst at Wells Fargo, wrote.
Following the financial crisis of 2008, the S&P 500 index saw a heavy 64.5% rise in earnings for the first quarter of 2010, following the market bottom in 2009. Similarly, after a sharp fall owing to the pandemic induced lockdown, S&P 500 earnings are now expected to recoup and jump 17.7%. Wells Fargo further added that they expect full-year 2021 earnings to grow by more than 30% with the S&P 500 earnings per share reaching a record high.
The recovery could be led by financials once again this time, followed by materials. “Financials appear set to lead the recovery with an expected 60.4% rise, closely followed by materials,” Gandikota said. “Equity markets are reflecting this surge in earnings with quarter-to-date returns of 17.3% and 10.3% for financials and materials, respectively,” he added. Energy and Industrials are believed to be earnings laggard this quarter, struggling with debt and reduced cash flows. However, both sectors could lead the full-year earnings growth.
Given the cyclical rebound that Wall Street is witnessing at this juncture, Wells Fargo remains favourable on Industrials, Financials, and Materials. Further US large-cap equities, small-cap equities, as well as emerging market equities are pockets where Wells Fargo is favourable. Meanwhile, it has a neutral view of US mid-cap equities.