Wall Street's first quarter earnings season kicks off this week, with banking giants JPMorgan Chase (NYSE :), Bank of America (NYSE :), Wells Fargo (NYSE :), Citigroup (NYSE :), Morgan Stanley (NYSE :), and Goldman Sachs (NYSE 🙂 are ready to report their latest financial results.
FactSet data shows that analysts expect first quarter earnings to increase 24.5% compared to the same period last year, mainly due to the diminishing impact of the COVID-19 health crisis on various industries .
If confirmed, Q1 2021 would mark the highest year-over-year (Y-o-Y) earnings growth reported by the index since Q3 2018, when tax cuts under former President Donald Trump triggered a surge in earnings growth.
At the sector level, nine are expected to report Y-o-Y earnings growth, led by sectors ,, and. On the other hand, two are predicted to report a decline in revenues from the same period a year ago, led by sectors and.
Revenue expectations are also encouraging, with revenue expected to grow 6.4% over the same period a year earlier. If confirmed, this marks the highest Y-o-Y sales growth reported by the index since Q4 2018.
Eight sectors are expected to report Y-o-Y sales growth, led by Consumer Discretionary, Consumer Discretionary, and Sectors. In contrast, three are projected to report annual declines in sales growth, again led by the Energy and Industry sectors.
Below, we break down two sectors whose financial results are expected to show a significant improvement over the same period a year ago and one sector whose revenues are expected to take the deepest dip under current market conditions.
2 Sectors Buying
1. Consumer discretionary: reopening enthusiasm to drive results
Expected growth in earnings per share in the first quarter: + 103.2 % on an annual basis
Expected Revenue Growth in Q1: + 15.0% YoY
The consumer goods industry – hit hard by COVID-related shutdowns a year ago – is expected to report the greatest annual growth in earnings of all 11 sectors, with an impressive 103.2% increase in earnings per share in the United States. first quarter, according to FactSet
Nine out of 10 sub-industries in the sector are expected to show double-digit earnings growth, led by auto manufacturers and luxury goods retailers, who are expected to see their collective earnings per share increase by 1.116% and 484%, respectively, over from a year ago.
The industry, which is arguably the most sensitive to economic conditions and consumer spending, is also expected to report the second-largest YoY revenue growth of all 11 industries, with first-quarter revenue expected to grow by 15.0%. rise.
Six of the 10 industries in the sector are expected to achieve double-digit profits, led by Internet and direct marketing retail stocks, whose collective earnings per share are expected to increase 38% year-on-year.
Indeed, the Consumer Discretionary Select Sector SPDR® Fund (NYSE 🙂 – which tracks a market cap-weighted index of S&P 500 consumer available stocks – is up about 11% since the start of the year, reaching of a series of record highs in recent sessions.
Top ten holdings include Amazon (NASDAQ :), Tesla (NASDAQ :), Home Depot (NYSE :), McDonald's (NYSE :), Nike (NYSE :), Starbucks (NASDAQ :), Lowe's (NYSE :), Booking Holdings (NASDAQ :), Target (NYSE 🙂 and TJX Companies (NYSE :).
2. Materials: Higher Commodity Prices Set to Generate Profits, Sales Growth
Expected Earnings Per Share Growth in Q1: + 46.4% YoY
Expected sales growth in Q1: + 9.6% YoY
The Materials sector is expected to post the third largest YoY earnings jump of all 11 sectors, according to FactSet, with earnings per share for the first quarter expected to increase 46.4% over the same period one year. ago.
With stronger prices of metals such as ,, en, benefiting the industry, it is also expected to report the fourth largest Y-o-Y sales increase, with expected sales growth of nearly 10%.
Not surprisingly, all four industries in this sector are expected to report explosive sales growth in the first quarter, with the SPDR® S&P Metals and Mining ETF (NYSE 🙂 group expecting a 501% YoY sales peak .
Two companies in the group stand out for their potential to achieve impressive results. The first is Nucor (NYSE :), which is expected to report earnings per share of $ 3.07 compared to earnings per share for the same period last year. The second is CF Industries (NYSE :), which is expected to report earnings per share of $ 0.58, compared to earnings per share for the same period a year earlier.
The Materials Select Sector SPDR® Fund (NYSE 🙂 – which tracks a capitalization-weighted index of US materials companies in the S&P 500 – witnessed the fourth-largest price increase of all 11 sectors in the first three months of 2021, an increase of 8.8%.
Top 10 equity holdings include Linde (NYSE :), Air Products & Chemicals (NYSE :), Sherwin-Williams (NYSE :), Ecolab (NYSE :), Freeport-McMoRan (NYSE :), Newmont Mining (NYSE) :), Dow Chemical (NYSE :), DuPont de Nemours (NYSE :), International Flavors & Fragrances (NYSE 🙂 and Corteva (NYSE :).
1 Sector to Avoid
Industry: Airlines Expected to Decrease Year-on-Year
Expected Drop in Earnings Per Share in Q1: -16.6 % on an annual basis
Expected decline in revenues in the fourth quarter: -3.3% year-on-year
The industry is expected to report the highest y-o-y earnings decline of all 11 sectors, with Group earnings per share declining 16.6%, according to FactSet. Of the 12 industries in the sector, four are expected to report a decline in revenues, led by airlines.
The Industry sector is also expected to report the second largest decline in revenues on Y-o-Y, with an expected decline of 3.3%. The aviation industry is again expected to be the largest contributor to the industry's annual decline in revenues, down 54% as it continues to offset the negative impact of the ongoing coronavirus health crisis.
At the corporate level, Delta Air Lines (NYSE :), American Airlines (NASDAQ 🙂 and United Airlines (NASDAQ 🙂 are predicted to be the largest contributors to the group's decline in revenues. The expected losses are for Delta, American and United.
Despite the projected decline in revenues and revenues, this sector enjoyed an 11% price increase during the quarter, the third best performance of all 11 sectors.
In fact, the industry's main exchange-traded fund – the Industrial Select Sector SPDR® Fund (NYSE 🙂 – is trading near its all-time high, rising above the $ 100 level for the first time in history earlier this week.
Top 10 holdings include Honeywell International (NYSE :), Union Pacific (NYSE :), Caterpillar (NYSE :), United Parcel Service (NYSE :), Boeing (NYSE :), General Electric (NYSE :), Deere (NYSE :), Raytheon (NYSE :), 3M (NYSE 🙂 and Lockheed Martin (NYSE :).
