Week in Review: Strong US Corporate Earnings

Positive earnings surprises reported by companies in multiple sectors (led by the Information Technology, Communication Services, and Consumer Discretionary sectors) were responsible for the significant improvement in overall earnings during the past week.

Tech giants Apple, Facebook, Alphabet and Amazon all beat analysts’ expectations as they released their quarterly results. Amazon reported record profit for the fourth straight quarter, with earnings of $15.79 per share, beating Wall Street’s expectations. Revenue of $108.52 billion for the first quarter also beat forecasts, with sales soaring 44% year over year. Facebook reported revenue of $26.17 billion for the quarter, which was up 48% compared with a year prior, while Alphabet reported a 34% increase in revenue year over year. Apple wasn’t far behind reporting revenues of $89.6 billion and a profit of $23.6 billion for the three months ending March 27, exceeding analyst forecasts.

The US economy edged closer to a full recovery in the first quarter of 2021 as the economy continued to rebound with increased optimism around vaccine distribution and new stimulus programs. The gross domestic product grew at an annualized rate of 6.4% through the quarter that ended in March, the Commerce Department announced Thursday. The median estimate from economists surveyed by Bloomberg called for an expansion of 6.7% over the three-month period. US GDP has now retraced roughly 95% of its pandemic-era decline.

The US Federal Open Market Committee met on Tuesday and Wednesday with US Federal Reserve Chair Jerome Powell reiterating that the Fed would wait for “some time” before raising rates, while also saying that policymakers were not ready to begin planning for a reduction in asset purchases.

The euro zone economy contracted in the first quarter of 2021 as countries implemented new lockdowns. Gross domestic product in the region fell by 0.6% quarter on quarter, according to preliminary data released by Europe’s statistics office Eurostat. It marks the second consecutive quarter of contractions, meaning the region is in a technical recession, although economists remain optimistic about growth looking ahead. In local currency terms, the pan-European STOXX Europe 50 Index ended the week 0.96% lower while the UK’s FTSE 100 Index gained 0.45%.

Japan’s stock markets finished the week lower, with the Nikkei 225 Index down 0.72%. The outcome of the Bank of Japan’s (BoJ’s) April monetary policy meeting largely matched expectations with short- and long-term policy interest rates unchanged.

Market Moves of the Week:

South Africa’s struggling national airline South African Airways (SAA) on Friday exited business rescue after roughly 17 months. The Department of Public Enterprises (DPE), the ministry responsible for SAA, said the government was in the final stages of negotiations with a preferred equity partner for SAA.

South Africa's trade surplus widened to 52.77 billion rand ($3.67 billion) in March from a revised surplus of 31.22 billion rand in February, the South African Revenue Service said. The surplus was the widest on record, with exports increasing 28.9% on a month-on-month basis. Sales in precious metals climbed 41% followed by a 22% jump in mineral exports.

The benchmark all share index ended the week weaker losing 0.53% to end at 66,937 points while the financial (+1.82%) and listed property sectors (+1.81%) ended the week firmer in the green. The rand ended the week weaker at R14,50 per dollar after briefly touching R14,14 earlier in the week.  

Chart of the Week:

 

What the chart is telling us:

As per the chart above earnings growth for the S&P 500 (500 largest companies listed on stock exchanges in the U.S.) reached 30% year on year. Overall, 60% of the companies in the S&P 500 have reported actual results for Q1 2021 to date. Of these companies, 86% have reported actual EPS above estimates, which is above the five-year average of 74% with big tech companies again reporting very impressive results. In terms of revenues, 78% of S&P 500 companies have reported actual revenues above estimates, which is also above the five-year average of 64%.

 

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