The Q1 Earnings Outlook: Why You Should Be Ready For A Correction

Tuesday, April 13, 2021 | Thomas Hughes
The Q1 Earnings Outlook: Why You Should Be Ready For A Correction

What To Expect From The S&P 500 Q1 Earnings Season 

One of our favorite data points to track is the weekly earnings consensus estimates from Factset. As good as the weekly predictions and outlook are, it is the trend of predictions and the outlook for future growth we're most concerned about. With the Q1 reporting season already underway and about to hit peak season we felt it was past time to get a grip on what to expect from the market not only this reporting season but for the year. Based on valuations, the S&P 500 (INDEX: SPX) is trading at 22.4X its forward earnings, the market is as highly valued as we've ever seen it and ripe for a correction. In our view, it's only a matter of timing, depth, and duration. If the Q1 reporting season fails to impress and not just with Q1 results the timing could be sooner rather than later. 

The Q1 Consensus Is Good, But There's A Catch 

The Q1 consensus for S&P 500 earnings growth is good at 24.5% and rising. The catch is that this is the first quarter of what we will call "easy" comps, comps versus pandemically impacted quarters in 2020. In that light, the growth is still good but a paler version of itself at only 10% versus the two-year comparison. Even so, the news is good but there is a risk for the market. With the analyst's consensus on the rise, the bar for S&P 500 companies is getting higher and higher. We still expect the average company to beat the consensus but by how much? The last two quarters saw robust double-digit outperformance vs the consensus, we are not confident that will happen again and that has the market set up to fall. Simply meeting consensus is usually not enough to keep the market happy. 

The Q1 Earnings Outlook: Why You Should Be Ready For A Correction

Looking forward, this problem is compounded by an increasingly easier comp. The current Q2 consensus is targeting 52.1% YOY earnings growth for the S&P 500 and that figure is on the rise. While the upward trajectory of EPS outlook is helping to support prices in the near term, we view this data as a hurdle for the indices and one that may trip it up later in the year. Add to that an increasingly difficult comp starting with the Q3 rebound and there is a real chance the market could stall. 

The Q1 Earnings Outlook: Why You Should Be Ready For A Correction

The comps start to get harder in the Q3 period and this will result in sharp deceleration of earnings growth. The good news is that growth is expected to remain and at a more sustainable pace, the bad news is the market will most likely experience a reset based on this outlook. At some point, the rebound stories will quit grabbing the attention and the market will have to focus on sustainability. 

The Technical Outlook: S&P 500 Earnings Expectations Are In Control 

The S&P 500 looks very bullish right now but there are risks. The bullish posture is pricing in a great quarter and a great outlook that may already be priced into the market. If the average S&P 500 company fails to impress we may see a correction that could range from a 1.0% what-was-that to a full-blown 20% bearmageddon. We don't think the market is doing to correct 20%, not now, but we do view this market as risky. Based on the data and the outlook for economic reopening the second half of the year should be strong. If that is the case any pullback or correction we see between then and now will be a buying opportunity. Near-term support is in the range of 4050 to 4075, firmer support is present at 3996, and strong support should be expected near 3920 or 5% below the current price action.

Featured Article: What is diluted earnings per share (Diluted EPS)?

7 Great Dividend Stocks to Buy For a Comfortable Retirement

There are people who will say the day of set it and forget it retirement accounts are over. But it’s a narrative we’ve heard before. The truth is the formula for saving for and enjoying a comfortable retirement, like the formula for weight loss, hasn’t really changed. A lot depends on whether an individual has the discipline to see it through.

Dividend stocks remain one of the core elements of a retirement portfolio. As individuals near retirement the ability to reinvest dividends allows for a greater total return. And once individuals need to live off their portfolio, the dividends provide a source of income without having to tap their principal.

However, not all dividend stocks are the same and many investors get sucked in by the allure of a high-yield dividend stock. But what you’re really looking for are companies with a history of increasing its dividend. The ability to increase a dividend over time illustrates that the company has a business model that can hold up regardless of how the broader economy is performing.

In this special presentation, we’ll highlight seven stocks that individuals can buy today to capture a stable, recurring dividend.

View the "7 Great Dividend Stocks to Buy For a Comfortable Retirement".

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
SPDR S&P 500 ETF Trust (SPY)0.6$424.31+0.2%1.31%N/AN/AN/A
Compare These Stocks  Add These Stocks to My Watchlist 

MarketBeat - Stock Market News and Research Tools logo

MarketBeat empowers individual investors to make better trading decisions by providing real-time financial data and objective market analysis. Whether you’re looking for analyst ratings, corporate buybacks, dividends, earnings, economic reports, financials, insider trades, IPOs, SEC filings or stock splits, MarketBeat has the objective information you need to analyze any stock. Learn more about MarketBeat.

MarketBeat is accredited by the Better Business Bureau

© American Consumer News, LLC dba MarketBeat® 2010-2021. All rights reserved.
326 E 8th St #105, Sioux Falls, SD 57103 | U.S. Based Support Team at [email protected] | (844) 978-6257
MarketBeat does not provide personalized financial advice and does not issue recommendations or offers to buy stock or sell any security.

Our Accessibility Statement | Terms of Service | Do Not Sell My Information

© 2021 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see disclaimer. Fundamental company data provided by Zacks Investment Research. As a bonus to opt-ing into our email newsletters, you will also get a free subscription to the Liberty Through Wealth e-newsletter. You can opt out at any time.