Third Quarter Earnings Season Preview

We have used most of the superlatives we know to describe corporate America’s stunning performances over the past two earnings seasons. Despite lofty expectations, results exceeded estimates by huge margins. We expect solid earnings gains during the upcoming third quarter earnings season, but upside surprises will almost certainly be smaller.

“We think earnings growth will be strong again this quarter,” explained LPL Financial Equity Strategist Jeffrey Buchbinder. “But those looking for massive upside surprises and big increases in estimates will probably be disappointed. The COVID-related supply chain disruptions and labor and materials shortages have held corporate America back some in recent months.”

After year-over-year S&P 500 Index earnings growth of 52% and 90% in the first and second quarters, shown in the LPL Chart of the Day, and massive upside surprises compared with expectations, the third quarter will probably look different. Upside surprises are likely to be more in line with history (potentially 6-8 percentage points above) and the overall increase will be smaller, perhaps in the mid-to-high 30% range.

Beyond those widely-reported supply chain challenges facing corporate America, there are other reasons to expect results this quarter to be closer to expectations. The latest batch of company pre-announcements has been less positive than in recent quarters, and estimates have stopped rising.

Earnings season kicks off this week with 19 S&P 500 companies slated to report, highlighted by several large banks. Look for a more in depth earnings season preview in our next Weekly Market Commentary on October 18, 2021.


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