Wall Street's second-quarter earnings season kicked off this week, with banking giants (NYSE:) and (NYSE:) reporting yesterday; lenders Bank of America (NYSE:), Wells Fargo (NYSE:) and Citigroup (NYSE:) all report on Wednesday, followed by Morgan Stanley (NYSE:) on Thursday.
FactSet data shows that analysts expect second-quarter earnings to rise as much as 64.0% compared to the same period last year, mainly due to the diminishing impact of the COVID-19 health crisis on various industries and companies.
If confirmed, the second quarter of 2021 would be the highest year-over-year (YoY) earnings growth reported by the index since the fourth quarter of 2009, when earnings growth rose 109.1%.
At the sector level, all 11 sectors are expected to report annualized earnings growth, led by the Energy, Consumer Discretionary and Materials sectors.
Revenue expectations are also promising, with revenue growth forecasting 19.7% year-on-year. If confirmed, it will be the highest year-over-year revenue growth reported by the index since FactSet began tracking this metric in 2008. The current record is 12.7%, which occurred in the second quarter of 2011.
Ten of the eleven sectors are expected to report year-over-year revenue growth, led by the Energy, Materials and Consumer Discretionary sectors. are expected to see a 0.1% decline in earnings.
S&P 500 Earnings Expectations
Below we break down three sectors whose financial results are expected to show explosive growth compared to the period a year ago in the current market conditions.
1. Energy: higher oil prices for better results
Expected EPS growth in the second quarter: N/A
Expected revenue growth in the second quarter: +87.0% year-over-year
The energy sector is expected to report a $13.5 billion profit for the second quarter, much better than a $10.6 billion loss in the year-ago period as the COVID-19 health crisis accelerated came and the economy came to a standstill
With higher crude oil prices in favor of the industry – the average price in the second quarter of 2021 was $66.17 a barrel, 136% above the average price of $28.00 in the second quarter of 2020 – is expected to record the highest year-over-year revenue increase of all 11 industries at 87.0%, according to FactSet.
At the corporate level, ExxonMobil (NYSE:) and Chevron (NYSE:) are expected to be the largest contributors to the year-over-year revenue growth for the industry. Combined, the two oil giants account for $13.0 billion of the industry's projected increase in earnings of $24.2 billion.
The other two notable names that will enjoy significant improvements in their financial results in the second quarter are Diamondback Energy (NASDAQ:), which is expected to report a 1,300% year-over-year increase in EPS, and Marathon Petroleum (NYSE:), which is expected to post earnings per share of $0.52, compared to a loss of $1.33 per share in the same period a year ago.
The Energy Select Sector SPDR® Fund (NYSE:) – which tracks a market capitalization-weighted index of US energy companies in the S&P 500 – is up 38.2% since the start of the year from 16.3% of the S&P 500 gains over the same time frame.
In addition to Exxon and Chevron, some of the largest holdings of XLE are ConocoPhillips (NYSE:), EOG Resources (NYSE:), Schlumberger (NYSE:), Marathon Petroleum, Pioneer Natural Resources (NYSE:), Phillips 66 (NYSE: ), Kinder Morgan (NYSE:), and Williams Companies (NYSE:).
2. Consumer luxury goods: hotels, restaurants and leisure To drive growth
Expected Q2 EPS Growth: +207.7% YoY
Expected revenue growth second quarter: +32.2% yoy
The consumer discretionary sector – which was hardest hit by the COVID-related shutdowns at this time last year – is expected to report the second-largest year-on-year earnings growth of all 11 sectors, with an impressive increase of 207.7 % in Q2 EPS, according to FactSet.
The group — arguably the most sensitive to economic conditions and consumer spending — is also expected to report the third-largest year-over-year revenue growth, with second-quarter revenue up 32.2%.
Nine out of ten industries in the sector are expected to make double-digit profits, led by hotels, restaurants and leisure stocks, which are expected to see their collective revenues rise 104% from a year ago.
At the enterprise level, Caesars Entertainment (NASDAQ:) and Penn National Gaming (NASDAQ:) are two to watch. Caesars' second quarter revenue forecast is $2.34 billion, up nearly 1,700% from revenue of $126.4 million last year, while Penn expects to report revenue of $1.46 billion, an increase of approximately 400% from revenue of $305.5 million in the second quarter of 2020.
The Consumer Discretionary Select Sector SPDR® Fund (NYSE:) – which tracks a market capitalization-weighted index of S&P 500 consumer durables – is up 12.9% since the start of the year, reaching a series of record highs in recent sessions.
XLY's top ten holdings are Amazon (NASDAQ:), Tesla (NASDAQ:), Home Depot (NYSE:), Nike (NYSE:), McDonald's (NYSE:), Lowe's ;s (NYSE:), Starbucks (NASDAQ:) , Target (NYSE:), Booking Holdings (NASDAQ:), and TJX Companies (NYSE:).
3. Materials: metals and mining set to generate profit, revenue growth
Expected EPS growth in the second quarter: + 118.0% yoy
Expected revenue growth second quarter: +32.6% yoy
The materials sector is expected to push the fourth-largest year-on-year earnings growth of all 11 sectors, with second-quarter earnings per share expected to rise 118% from the turbulent period a year ago, according to FactSet.
With stronger metal prices — such as , and — helping the industry, it is also expected to report its second-largest year-over-year sales growth, with sales expected to grow close to 33%.
Not surprisingly, all four industries in this sector are expected to report explosive second-quarter earnings per share and revenue growth, with the Metals & Mining group seeing an increase in earnings and sales of respectively 667% and 75% compared to the same period a year ago.
The Materials Select Sector SPDR® Fund (NYSE:) – which tracks a market capitalization-weighted index of U.S. basic materials companies in the S&P 500 – is up about 14% in 2021.
XLB's ten largest equity holdings include Linde (NYSE:), Sherwin-Williams (NYSE:), Air Products & Chemicals (NYSE:), Freeport-McMoRan (NYSE:), Ecolab (NYSE:), Newmont Mining (NYSE :), DuPont de Nemours (NYSE:), Dow (NYSE:), PPG Industries (NYSE:), and International Flavors & Fragrances (NYSE:).
Two companies of the group are distinguished by their potential to achieve impressive results. The first is , which is expected to report earnings per share of $2.30, compared to a loss of $0.26 per share in the same period a year ago. Second is Nucor (NYSE:), which is expected to report earnings per share of $4.74, a 1,200% improvement from earnings per share of $0.33 in the same period a year earlier. ]
