What’s Going On Here?US companies are preparing to deliver updates on their second-quarter earnings, and investors might be pleased to see companies’ lives going back to the way they were. What Does This Mean?Earnings season doesn’t start in earnest till the big US banks begin reporting on July 13th. But pulses are already racing: according to data provider FactSet, analysts are currently predicting that average profits at companies in the S&P 500 index will come in 63% higher than this time last year. That’d make for the biggest annual increase since 2009, and well up on just three months ago when investors were predicting a second-quarter earnings increase of 52%. As for why analysts have lifted those forecasts, it’s all down to the US economy’s faster-than-expected recovery from the effects of coronavirus – and they’re not the only ones feeling more optimistic… Why Should I Care?The bigger picture: No more excuses.
The pandemic provided the ultimate cop-out for company CEOs reluctant to give guidance on future profitability. But now that the worst of the pandemic looks like it’s behind us, the number of US firms issuing forecasts for the upcoming quarter – which halved this time last year – has returned to normal. And perhaps significantly, a bigger proportion of those companies have a positive outlook than at any time in at least the last five years.
Zooming out: The music’s still playing – for now.
Enthusiastic analysts are probably being won over by the rip-roaring stock markets too: average year-end targets for the S&P 500 have risen to 4,300 from 4,000 at the start of 2021. That rally can’t last forever, mind you: the pace of US economic expansion is expected to slow from 6.6% this year to just 2.3% in 2023, and that’ll eventually rein in company profit growth. | 