2021 Earnings Expectations

April 23, 2021

By Tim Courtney, Chief Investment Officer

First-quarter earnings season is officially underway, which will provide key guidance on the health of the U.S. economy and current market valuations.1

To understand the significance of this earnings season, however, let’s first look back at market conditions over the past year or so. In 2020, we had the fastest bear market ever followed by one of the most robust recoveries in U.S. history. The market ignored bleak 2020 earnings.2 For reference, the S&P 500 booked an aggregate earnings per share (EPS) of $94.13 last year compared to $139.47 in 2019 — the lowest since 2015.3

This $94.13 number did not even paint a full picture of the devastating impact the COVID-19 pandemic had on U.S. businesses. While mega-cap tech companies like Apple, Google, Amazon, Facebook and Microsoft fared extremely well last year and pulled up the S&P 500 earnings, profits of smaller companies or those in the travel, energy and industrials sectors were terrible.  Many reported negative earnings.4

Despite this, the market continued to move higher and by the end of 2020 was back to hitting new highs.5 The S&P 500’s price/earnings (P/E) ratio on 2020 booked earnings soared to roughly 40 in the fourth quarter, meaning investors were willing to pay roughly $40 for $1 of earnings. This was about the level we hit during the 1999 dot-com bubble.6

While the market offered corporate earnings a mulligan in 2020, that will not be the case in 2021.  Investors want to see healthy profits across the board to justify stock prices — and to see the PE ratio drop to more normal levels.

So far we are optimistic the earnings will come in strong and justify the price recovery.  Gross domestic product (GDP) expectations are in the 6-7% range and rising, which should be a sign that earnings will be healthy.7 Additionally, most companies that have already reported earnings this week and last have beaten Wall Street’s expectations.8

All in all, Standard and Poors is predicting S&P 500 earnings to clock in around $167 for the full calendar year.9 Assuming the current share price of the S&P 500, this would put the S&P 500 P/E ratio near 25 — higher than 100 year historical averages but a much more reasonable level and closer to what we’ve seen over the last several years.10

In the coming weeks and quarters, we’ll be closely watching to see if earnings do in fact appear capable of this $167 number with a heightened attention on companies hit hardest at the start of the pandemic.


  1. CNBC Pro – Earnings reporting season kicks off next week. What investors should expect
    2. The Wall Street Journal – Why did stock markets rebound from Covid in record time? Here are five reasons
    3. Standard and Poors:  SPGlobal.com, S&P 500 Index Earnings Estimates (as Reported, 2020)
    4. S&P Global Market Intelligence – Driven by big tech’s pandemic gains, S&P 500’s 2020 surge masks uneven recovery
    5. Yahoo! Finance – S&P 500
    6. Multpl – S&P 500 PE Ratio
    7. Business Insider – ‘Flood gates are about to open’: Bank of America just boosted its forecast for 2021 US GDP growth for these 3 reasons
    8. CNBC.com – So far in earnings season, companies are reporting numbers way above what Wall Street expected
    9. Standard and Poors:  SPGlobal.com, S&P 500 Index Earnings Estimates (as Reported, 2021)
    10. Investopedia – Price-to-earnings ratio – P/E ratio

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 9.9 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 3.4 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

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