Zacks Investment Research | Sep 10, 2021 05:52AM ET
We all know that the overall earnings picture has been very strong, though the ongoing resurge in Covid infections has started weighing on near-term economic outlook, with estimates of Q3 GDP growth sharply coming down in recent days. Unlike Q3 GDP growth estimates, earnings expectations for the period have not been revised lower, but the revisions trend has nevertheless lost its earlier momentum. You can see this in the chart below that tracks the evolution of Q3 earnings growth expectations:
What we see here is that while the trend remains positive, it seems to have stalled out sine late July. In fact, the magnitude of positive revisions to Q3 estimates is notably below what we had seen in the comparable periods of the last three earnings seasons. This loss of momentum is likely tied to the emerging economic slowdown, which in turn is likely a function of the Delta variant. Estimates of GDP growth have been steadily coming down, and currently stand around +3% — roughly half of the growth rate expected a few months back. We also need to keep an eye on the margins outlook given rising cost trends in labor, inputs, freight/logistics and other line items. The market appears to agree with the Fed’s assessment of this trend as “transitory” and a function of Covid-related disruptions that will eventually even out. This view is reflected in current consensus estimates, as you can see in the chart below:
This “transitory” view of the ongoing cost pressures is even more pronounced in the annual view of the margins picture, as the chart below shows:
We all know that the “transitory” or otherwise debate has implications for Fed policy, which is as important for the market as the outlook for earnings and margins. Expectations for Q3 & Beyond The last earnings season (2021 Q2) not only witnessed a very high earnings growth rate, but the aggregate tally of total earnings also reached a new all-time quarterly record, surpassing the record set in the preceding period. Other positives that came out of Q2 earnings season included the breadth of strength across all the key sectors and the notable momentum on the revenue front. We know that the unusually high growth rates of the first two quarters will not continue in the last two quarters as they largely reflected easy comparisons to the year-earlier periods that were severely impacted by Covid-related disruptions. Comparisons will be relatively normal in 2021 Q3 and beyond as the U.S. economy had started opening up in the year-earlier period and hence the expected deceleration in the growth pace. You can see this expected growth deceleration in the below chart that puts 2021 Q3 earnings and revenue growth expectations in the context of where growth has been in the preceding four periods, and the estimates for the following three quarters.
The comparable picture on an annual basis is no less impressive, as you can see in the chart below:
We mentioned earlier how the aggregate 2021 Q2 earnings tally represented a new all-time quarterly record. You can see that in the chart below, with this year’s four quarters highlighted:
We all know that large segments of the economy, particularly in the broader leisure, travel and hospitality spaces are held down by the pandemic, with companies in these areas still earning significantly less than they did in the pre-Covid period. In fact, many of these companies aren’t expected to get back to pre-Covid profitability levels for almost one more year. The impressive feature of the record earnings in each of the last two quarters is that they were achieved without help from these key parts of the economy. Earnings Season Gets Underway We will be counting Oracle’s Earnings Trends report >>>> Looking Ahead to the Q3 Earnings Season
Bitcoin, Like the Internet Itself, Could Change Everything
Blockchain and cryptocurrency has sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix (NASDAQ:NFLX) did to Blockbuster and Amazon (NASDAQ:AMZN) did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities.
Zacks’ has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 3 crypto-related stocks now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.