Last Week’s Markets in Review: Will Earnings Again Surprise to the Upside?

Equity markets rebounded last week to finish in positive territory. In the U.S., the S&P 500 Index rose to a level of 3,841, representing a gain of 1.96%, while the Russell Midcap Index moved 0.83% higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, continued its impressive run to gain 2.15% over the week. International equities also fared well as developed and emerging markets returned 0.70% and 2.57%, respectively. Finally, the 10-year U.S. Treasury yield settled in at 1.10%, roughly flat compared to the prior week.

Last week the three major U.S. stock market indexes, the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite, all reached new record highs before a risk-off tone set in on Friday. The Presidential Inauguration, earnings season, and economic updates highlighted the week. This week, we’ll focus our insights on company earnings for the fourth quarter of 2020. However, we want to note that last Thursday’s jobs report told us that 900,000 Americans filed for new jobless claims for the week ending January 16. While the reported total was less than expected and a reduction from the initial claims reported for the prior week, it’s significantly higher than the 700,000 that initial claims were trending within towards the end of 2020. Unemployment remains a significant risk to the overall economic recovery. As a result, while the vaccine deployment and fiscal stimulus will help with the re-opening of the economy, we will be paying close to employment data in the upcoming weeks and months.

Back to our insights on corporate earnings as we are heading into the thick of the Q4 2020 earnings season. While many believe, and the markets are anticipating, that better times are ahead, the final quarter of 2020 is expected to show that S&P 500 earnings contracted for the fourth consecutive quarter compared to the prior year. The chart below shows the decline expected from JP Morgan. As you can see, Healthcare and Technology are the only significant contributors to earnings growth due to the trends that bolstered those two particular sectors during the COVID-19 pandemic.

That being said, investors may be asking themselves if another quarter of earnings and revenue “surprises” are in store? As you may remember, the second and third quarters of 2020 offered an excessive number of companies beating expectations. The chart below captures these results. As you view this chart, please keep in mind that the last column is the current quarter and only represents a small number of companies that have reported thus far.


Exceeding expectations to this extent again may be a tall task for the 4th quarter of 2020 since analysts have generally been increasing estimates throughout the quarter. It will also be interesting to see how many companies decide to issue forward guidance. With a new administration in office and multiple approved vaccines being deployed globally, we have more clarity now than we did 3-6 months ago. As it stands today, the number of companies offering guidance is slightly below the 5-year average. Breaking down the type of guidance being offered tells an interesting story as the number of companies issuing negative guidance is below the five-year average, while the number of companies providing positive guidance is above the five-year average, according to FactSet.

We remain optimistic for potential growth opportunities for global stocks in 2021 and will keep a close watch on this earnings season and company guidance. For example, certain international stock markets look attractive, in our opinion, as do small-cap stocks. Value and cyclical-oriented investment strategies also stand to benefit as the economy continues to recover from the deep, yet relatively short, recessionary period that occurred in 2020.

We continue to encourage investors to work with experienced financial professionals to help manage their portfolios through various market cycles within an appropriately diversified framework that is consistent with their investment objectives, time-frame, and risk tolerance. Best wishes for the week ahead!

Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 1/22/21. Rates and Economic Calendar Data from Bloomberg as of 1/22/21. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index, U.S. Large Cap defined by the S&P 500. Sector performance is measured using the GICS methodology.

Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.

Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against loss.

Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than the original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.


MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

Investors cannot directly purchase any index.

LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.