Corporate Earnings

Posted By Darren Winters on Feb 16, 2021


Corporate Earnings

A view of corporate earnings is now apparent with 80% of S&P Q4 earnings having reported in the last few weeks. 

The latest corporate earnings underscore a two-tier economy and a dualistic stock market emerging, with tech booming, tourism and travel in a state worse than the Great Depression. 

Bullish corporate earnings in the booming tech economy skews the results upwards

So, the bundled corporate earnings view shows a bullish picture with a growth rate for the fourth quarter at 2.9% today. 

Bulls are putting their faith in vaccination recovery as economies open up and they argue that what we could soon see are seeds of a recovery spouting with corporate earnings hitting double-digit earnings growth for all four quarters of 2021, according to Factset.

The view is that corporate earnings are bullish going forward and bears looking for signs of a stock market crash will not find it in upbeat tech corporate earnings.

The tech view of corporate earnings, the best performing sector with the highest earnings double-digit growth bull bucks the bear view that a tech crash is imminent

Corporate Earnings

2020 Q4 tech earnings have been solid with impressive pandemic proof double-digit earnings growth in the last quarter. 

Tech Sector continues to lead the charge with the largest Increase in revenues since December 31. 

“At the industry level, five of the six industries in this sector are reporting earnings growth. Four of these five industries are reporting double-digit growth: Semiconductors & Semiconductor Equipment (28%), Software (26%), Technology Hardware, Storage, & Peripherals (23%), and Electronic Equipment, Instruments, & Components (19%),” according to Factset. 

The digitalization of everything, a mega macro trend that has been accelerated by the pandemic lockdown is rocket propelling tech corporate earnings

Pandemic lockdowns, travel restrictions, closures of bars, restaurants, nightclubs have forced human interaction, whether it be for social or business purposes, to go digital. So, the boom in video conferencing and social networking sites, streaming, gaming, contactless payments, and online shopping is rising out of a pandemic economy. Moreover, with household income diverted away from the “experience spending,” some of it has gone into technology hardware. Consumer Discretionary sector (+47.5%). So there has been a boom in sales of gaming consoles, and smart everything from TVs to iPhones, which could also be contributing to semiconductor shortages. 

Upbeat corporate earnings were also reported in the financial sector which reported the largest increase in earnings (+26.1%) since December 31

Fintech companies along with online brokers are booming as they struggle to keep up with retail demand with people stuck at home, bored, and a lot of discretionary spending. 

The latest corporate earnings in health care were also solid reporting year-over-year growth at or above 10%

The Health Care sector reported in Q4 the highest (year-over-year) revenue growth of all eleven sectors at 12.1%. Sub sectors in the health care leading the growth were Life Sciences Tools & Services (34%), Biotechnology (25%), Health Care Equipment & Supplies (14%), Pharmaceuticals (11%), and Health Care Providers & Services (10%). However, the only industry that is reporting a decline in revenue is the Health Care Technology (-3%) industry, according to Factset. 

But how is a green policy shift by the new Biden administration impacting corporate earnings? 

Reduce carbon and greenhouse gas emissions is already on the radar of at least 28 S&P 500 companies.

For climate change & energy policy, 28 S&P 500 companies have cited or discussed this policy in conjunction with the Biden administration on their Q4 2020 earnings calls. Of these 28 companies, 17 expressed support for (or a willingness to work with) the Biden administration on policies to reduce carbon and greenhouse gas emissions, according to Factset. 

At least 17 companies are discussed initiatives to reduce their carbon and greenhouse gas emissions. Moreover, these companies are planning to innovate products and services which help clients and customers reduce their carbon and greenhouse gas emissions.

“Five of these 28 companies made specific reference to the Paris Agreement during their earnings calls” reported Factset.

The Paris Agreement came into force in 2016, united nearly 200 countries in a global pact to tackle climate change with national carbon-cutting plans.

A global policy of carbon-free mass transportation is disrupting a one trillion-dollar auto industry, thereby creating a boom in EVs and the next generation of automobiles, digitalized and fitted with scalable cloud secure connected software

A self-driving carbon-free robotaxi is now a reality. 

So, if this virus keeps mutating faster than the efficiency of vaccines, which could also be a reality bearing in mind an overwhelming number of virologists believe Covid is artificial, then robotaxi, along with automated cashiers and cashless payments and robots is going to be in hot demand. 

The pandemic economy, where humans live physically isolated but digitally connected, is a tailwind for tech corporate earnings

As the fourth revolution digitalization of everything, and perhaps even human will become part of the digital matrix corporate earnings in the communication service and Information Technology are also likely to boom. So, I am not surprised that 95% Communication Services and Information Technology 91% beat earnings. 

But here comes the bear case where corporate earnings have been decimated by the pandemic lockdowns and travel restrictions

The Travel Tourism industry has been worse hit by the pandemic, it is worse than the Great Depression, if you live in a city, you’ll already notice many abandoned hotels with more than 50% of people have lost their jobs. Hotels, Restaurants, & Leisure, which comes under consumer discretionary, negative 42%, industry, according to Factset. The energy sector reported revenue of all eleven sectors at negative 33.3%. 

The Industrials sector was also negative 32.3% reporting the third worse negative corporate earnings. 

Real estate was also in negative territory contracting 5%. 

The latest corporate earnings paint a picture of a dual economy with dual corporate earnings Tech at the top and tourism and travel in a depression

Whether this will change is a question for virologists. If the virus mutates faster than the vaccine effectiveness then this surreal world we are currently living in, with rolling lockdowns, travel restrictions and human isolation could be the new normal, a cliché I hate using.

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