Directory
- 2020
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- 2021
- January
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
- February
- Long Term Employment Shifts Caused by the Pandemic
- Earnings Provide Positive Surprise Despite Pandemic
- Renewable Energy Under Fire in Texas
- Yellen Aims for Full Employment
- Minimum Wage Research in the Spotlight as a Hike Looks Inevitable
- Non-Residential Construction Soft in the Pandemic Economy
- March
- Views on Interest Rates and the Move in Treasury Yields
- Inflation Indicators Healthy but Still on the Rise
- Risky Assets Sell-off Despite Optimistic Economic Outlook
- The Latest on Vaccinations and What it Means for Growth
- April
- May
- Highlights of the Fed's "Economic Well-Being of U.S. Households in 2020" Report
- Relative Factors and Forward Change in Federal Funds Rate
- Can Wage Growth Keep Up With Inflation?
- June
- July
- August
- With That, We Carry On
- Supply Pressures Looking to Peak
- Cars are Still Expensive, Workers are Still Needed
- Recovery Continues, but Delta Looms
- September
- Fed Eyes Tapering While China Sees a Setback
- Review the Fed Previews
- No Tapering Yet
- Labor Day on Labor Day
- October
- Delayed or Disappearing Growth?
- Supply and Demand Mismatch will be Evident during the Holiday Shopping Season
- Workers Find Leverage in a Tight Labor Market
- Cautiously Optimistic
- Sour Expectations Take Down the Market
- November
- Q3 Earnings Were Surprisingly Good
- Inflation Weights on Bonds and Consumer Sentiment
- FOMC Tapers While Trade and Employment Flash Mixed Signals
- December
- 2022
- January
- Inflation is Getting Broader, Not Cooler
- Unemployment Insurance During the Pandemic
- A Year of Normalization
- What Will GDP Growth Look Like in 2022?
- February
- March
- April
- May
- June
- August
- Student Loans Targeted by the Biden Administration
- The Chicago Fed Index Reverses in July
- Chinese Economic Data Faltered in July
- Stellar Jobs Report Bucks Recession Fears
- September
- Bank of Japan Punished for Dovish Policy Stance
- Expect 75 Today
- Manufacturing Weakness in Germany has Implications for Euro Area Growth
- October
- 2023
- February
- April
- Q1 GDP Growth Jumps 1.1% on Strong Personal Consumption
- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- May
Q3 Earnings Were Surprisingly Good
Jacob Hess
November 22, 2021
- Weekly Commentary
- Earnings
The Week Behind
Companies have been reporting Q3 2021 earnings for the past few weeks now, updating on how supply disruptions have affected various industries. With the macro environment that had developed over the summer, many analysts were worried there could be some disappointment in Q3 numbers especially with input costs rising and labor shortages persisting. However, their doubts have mostly been proven wrong as firms' bottom lines were resilient.
According to FactSet, 81% of S&P 500 companies have reported a positive EPS surprise, and 75% have reported a positive revenue surprise with 92% reporting. The blended earnings growth rate (earnings growth for those who have reported plus the estimate for those who are still to report) is 39.1% for Q3 2021 which would be the 3rd highest annual rate of earnings growth since 2010. While this is not as strong as Q1 at 49% YoY and Q2 at 92% YoY, it is a strong showing in the context of supply constraints.

This hasn't stopped discussions of inflation cropping up in earnings call. In fact, "inflation" seemed to be a bit of a buzzword coming up 285 times in S&P 500 earnings transcripts, the most in the last times and more than twice the 5-year average. There are still 40 more Q3 calls yet to happen. It's not much of a surprise that inflation has become an issue, but it may be a surprise that companies are managing their bottom lines so well in the face of it. Of course, we have seen that those costs are coming through to consumers finally, but PPI is still significantly higher than CPI even in the latest October report: headline CPI at 6.2% and core CPI at 4.6% vs headline PPI at 8.6% vs core PPI at 6.2%.
This hasn't weighed on margins as much as it typically might because demand is still experiencing strength from excess savings and the pent-up consumer activity that has been released by restrictions. Invesco reports that the S&P 500 so far is reporting a net profit margin around 12.9% which is near a record-high. Prospects for Q4 margins look solid so far as well, forecasted at 11.8%, only a slight decrease expected from Q3 even though inflationary pressures seem likely to remain harsh.
Consumer activity during the holiday season will likely help out many companies that have been forced to raise prices. Many retail surveys point to households spending around the same as 2019 if not slightly more, but they have also planned to start spending earlier than usual. This may push have pushed some firms' revenue to the back end of Q3 that may have typically come through in early to mid Q4. It's speculation but something to consider.
Regardless of how the holidays go, more demand is being spoon-fed to US companies in the form of the infrastructure bill just recently passed in November 2021. This is especially true for the Industrial and Energy sectors which are projected to see earnings growth spike. In particular, Fidelity points to expectations of 37% and 30% YoY forward EPS growth for Industrial and Energy companies respectively.
Despite what headlines are telling you about supply disruptions, US corporations found a way to excel in Q3. Post-pandemic business optimism appears to be in store for 2022, but that could come at the cost of the consumer. Although, excess savings should dampen the pain. There are plenty of reasons to be bullish on US businesses, and earnings last quarter are a big reason why.
Chart of the Week

S&P 500 net profit margins have held up well in Q3 2021 despite the CPI-PPI spread turning lower due to elevated input cost inflation.
The Week Ahead
Wednesday is the day to watch with lots of economic data to chow on before moving on to another feast on Thursday. Durable goods orders and another GDP update are the big ones with some interesting economic footnotes provided by new home sales and UMich's consumer survey. Likely not enough to shift views on supply disruptions and get equities out of the rut they have fallen in.