Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Lockdowns in 2021 threaten to slow first-quarter earnings recovery globally

Stock MarketsJan 13, 2021 02:50PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: A price screen display is seen above the floor of the New York Stock Exchange (NYSE) after the close of trading in New York 2/2

By Thyagaraju Adinarayan and Caroline Valetkevitch

LONDON/NEW YORK (Reuters) - A major chunk of the global recovery in companies' earnings expected in the first quarter is at risk of being pushed back further as lockdowns and mobility restrictions in several countries cloud hopes of a swifter economic rebound, investment banks said.

China announced lockdowns in four cities and European countries unveiled tighter and longer coronavirus restrictions on Wednesday, denting back-to-normal hopes and sparking worries about further economic damage in 2021.

Germany, Britain and the Netherlands indicated strict COVID-19 curbs would last into early February and Italy said it would extend its state of emergency to the end of April. Japan also expanded a state of emergency in Tokyo, hurting the prospects of holding an already delayed Summer Olympics.

In the United States, sweeping stay-at-home orders were re-instituted last month in California, the most populous state, as infections surged.

Those actions globally prompted words of caution from major investment banks and other market-watchers.

"An additional wave of COVID is among the key risks to be monitored this year," said Vincent Manuel, global CIO at Indosuez Wealth Management.

"In the past two quarters we were in the trend of positive earnings momentum both in Europe and in the U.S., which was coming from the value segments of the market. Now it's true that should we have disruptions from COVID, it would trigger negative revisions for Q1, but what matters even more is the rebound capacity of earnings over the following quarters."

Analysts' earnings estimates for the first quarter did not reflect the worry either - Europe is seen reporting a whopping 40% jump in profits, while earnings of U.S. S&P 500 companies are forecast to rise by 16%, according to IBES data from Refinitiv. The S&P 500 first-quarter estimated profit growth is up slightly since Jan. 1.

First-quarter and 2021 corporate guidance will be key for investors in the coming weeks. This week marks the start of fourth-quarter 2020 earnings for U.S. companies, with results from JPMorgan Chase (NYSE:JPM) and other major banks due on Friday.

"We see risks of downward guidance this earnings season," BofA's equity strategist, Savita Subramanian, said in a note on Wednesday, highlighting a consensus on U.S. profits that points to a drop of just 3% versus pre-COVID-19 levels in 2019.

"While additional stimulus could provide upside risks, rising COVID cases suggest a more tepid recovery from here."

There were some cracks appearing in expectations of a V-shaped bounceback in earnings, with the pace of upward revisions in global earnings estimates cooling down in recent weeks.

(Graphic: Global earnings upgrades slowing - https://fingfx.thomsonreuters.com/gfx/buzz/rlgvdgwmapo/Pasted%20image%201610548817808.png)

Many companies are still troubled by the pandemic. Coca-Cola (NYSE:KO) Co said last month it will cut 2,200 jobs globally, including 1,200 in the United States, due to the impact of the virus on the economy.

Still, U.S. and European companies were seen reporting profit growth of 20.8% and 38% respectively for 2021, according to Refinitiv based on MSCI indexes.

Some U.S. strategists think consensus forecasts may be underestimating the expected pickup in the economy.

Jonathan Golub, chief U.S. equity strategist and head of quantitative research at Credit Suisse (SIX:CSGN) Securities, raised his 2021 targets on the S&P 500 last week, saying in a report that "the likely avalanche of pent-up consumer demand cannot be ignored."

Vaccine rollouts have been a major reason for the rosy outlook picture.

"There is widespread hope that a COVID-19 vaccine rollout in 2021 can normalize the underlying real economy and increase earnings, employment and margins," said Steen Jakobsen, chief investment officer at investment bank Saxo.

"The risk is that new mutations of the virus will dilute our attempt to normalise our society with the first-generation vaccine."

Lockdowns in 2021 threaten to slow first-quarter earnings recovery globally
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email