Inflation, ESG Top Concerns Heading Into Q2 Earnings Season
Christine Short | Jun 18, 2021 02:52PM ET
Traders are gearing up for another earnings season. S&P 500 companies have handily beaten analyst expectations in each of the last four reporting periods, so expectations are likely growing loftier. Market analysts and economists have been raising earnings outlooks for the balance of 2021. Just last week, the Federal Reserve raised its 2021 GDP growth outlook. The FOMC now expects 7.0% growth of the U.S. economy this year, which would be the highest since 1984’s 7.2% gain.
Figure 1: Bank of America US Equity & Quant Strategy S&P 500 EPS Beat History
Corporate America and the economy are running on all cylinders right now, while Europe is also finding its footing. Inflation is often a byproduct when growth runs above the long-term average of 2-3% per year. Companies voiced that issue on conference calls during the previous earnings season. FactSet reported that the first quarter 2021 earnings season featured the highest percentage of S&P 500 companies citing “inflation” on earnings calls in over 10 years. Expect more of the same with particular emphasis on supply chain constraints and order backlogs across many cyclical and consumer sectors.
h2 Sectors Most Concerned/h2Figure 2: 2021 Shareholder Meetings
Source: Wall Street Horizon data
h2 ESG Bigger Than Ever/h2Also happening next week are two conferences on the hot topic of ESG. Environmental, Social and Governance are top of mind (along with inflation) in the C-Suite. On Tuesday this week, Johnson & Johnson will host an ESG Investor Update Webcast.
With a record number of S&P 500 discussing ESG during the Q1 earnings season, expect more such conferences as the year progresses, particularly as events move to traditional in-person settings. Wall Street Horizon gathers investor conference dates and source links for our clients to keep traders ahead of important news often detailed at these key events.
h2 CSCO & JNJ ESG Conferences/h2
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At the Cisco & Goldman webcast, Cisco’s SVP of corporate affairs will provide an overview of the firm’s Corporate Social Responsibility (CSR) strategy and how it will help overall shareholder value creation. As companies become cash-rich during these booming economic times, the importance of how to deploy that capital becomes increasingly significant. Earlier this month, we detailed that firms have recently begun to increase dividends . Dividend changes are just one of the corporate data points we track from the 9,000+ global firms Wall Street Horizon covers.
J&J’s ESG Investor Update on Wednesday is slated to outline the company’s ESG management approach around its corporate priorities. The S&P 500’s biggest health-care company by market cap will share progress it has made to drive long-term value creation for shareholders and how it is addressing concerns of all stakeholders. It was an eventful past 52 weeks for J&J, so this webcast should be particularly useful to investors.
h2 Preliminary Earnings/h2On the earnings front, three small stocks issued preliminary earnings reports over the last two months and are scheduled to report quarterly results this week.
Key Tronic Corporation (NASDAQ:KTCC), Giga-tronics (OTC:GIGA) and Friedman Industries (NYSE:FRD) have earnings reports on Tuesday, June 22, Thursday, Jun 24 and Monday, June 28, respectively.
Traders and investors in these names should be on guard for unusual news to be included with the quarterly results data. Companies often pre-announce earnings to incorporate key information beyond financials—such as M&A activity or regulatory issues. You can read more about the importance of preliminary earnings announcements and why they are critical for portfolio managers to monitor in our white paper .
h2 Dividend Resumptions/h2We wrap up this week’s Event Data Outlook with positive news. Two U.S. firms recently resumed paying dividends.
Signet Jewelers Ltd (NYSE:SIG) and Rev Group Inc (NYSE:REVG) announced dividend resumptions earlier this month. While there are just two data points, it continues a broader theme of companies emerging with confidence from a difficult period last year.
h2 Conclusion/h2The optimistic narrative from a few months ago of pent-up consumer demand has given way to the pessimistic narrative of supply shortages and inflationary fears. The Federal Reserve was forced to change its projection of future interest rate hikes to account for higher consumer prices.
It will be particularly interesting to monitor the top risks cited by global firms during the upcoming earnings season. Fundamental economic shifts are tough to navigate, while ESG concerns grow ever-present. It will be a busy time for investors following the U.S. holiday weekend, and traders must stay on top of the latest news and corporate events.
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