"You have power over your mind, not outside events. Realize this, and you will find strength."

 Marcus Aurelius

The year 2020 seems certain to go down in history as the craziest one of our lives…so far.

Thank God I pre-ordered my supply of fruit-flavoured TUMS.  

The good news?  

Well, earnings season has been, in a word, shocking.

It’s hard to fathom sometimes that we’re now about seven or eight months into lockdown and a severe leashing of the global economy, yet the manner in which companies and "We The People" are responding is making the world of analysts look downright foolish.  

Here’s the positive backdrop continuing to build for 2021 and beyond:

• The third quarter results reconfirm the steadily improving earnings outlook that we have been highlighting since early Summer. We are continuing to see an above average proportion of companies beating Q3 estimates. Expectations for the current period (2020 Q4) are steadily rising as well. 
• Don't let the short-term market chop or malaise fool you. It may appear there’s less enthusiasm about positive Q3 earnings results so far, but it’s likely due to that other thing that happened this week – an election that still seems to be unfolding. 
• For the 364 S&P 500 members that have reported Q3 results already, total earnings are down -7.8% from the same period last year on -2.6% lower revenues. But - and this is HUGE:  86.3% are beating EPS estimates and 77.7% are beating revenue estimates - both records (and note the last two bullet points are in the middle of a shutdown). 
• Tech Rules the future. Period. Technology sector results have been notably strong, with total Q3 earnings for the 82.4% of the sector’s market capitalization in the index that have reported +10.3% from the same period last year on +6.0% higher revenues. 
• In Tech - a staggering 95.7% are beating EPS estimates and 91.5% are beating revenue estimates. This is why we have been preparing you over the last few years for the Tech waves of change ahead.

And from here on out for Q3? Well, looking at the quarter as a whole, total S&P 500 earnings are expected to decline -10.3% on -1.5% lower revenues, which is still a huge shocker when you consider the valley through which we have travelled.

Folks, the growth picture has been steadily improving since early July, but the pace of improvement has started accelerating as companies have come out with better-than-expected results.

And please note in the chart below the evolution of the Q4 data that’s set to start being released in January of 2021 for this year-end:

Estimates for the quarter are steadily going up, a trend that we saw in Q3 as well.

Now, looking at the calendar-year picture (below) for the S&P 500 index, earnings are expected to decline -18% on -4.3% lower revenues in 2020 and increase +22.1% on +7.6% higher revenues in 2021. 

Note that estimates for both years have been going up since early July, with full-year 2021 estimates already past the 2019 level:

Ok, so had I told you on January 1st that we would be in for an 8-month global lockdown and our lives would change entirely, would you have guessed S&P 500 revenues would have only fallen 4.3%? 

Let’s just say, “Probably not.”

The snapshot below gives you the quarterly evolution and evaluation, whereas the chart above is the annual picture:

Will Near-Term Improvement Surprises Continue?

In simplest terms, the answer is “Yes.”

Have a look at the latest on US employment (below).

Once again, the theme of “Surprises to the upside” continues apace:

We can see just how far off the experts were…once again.

Long-term investors have learned that when all of the above ingredients are baked into the pie, the road ahead has been marked by a clear and resounding message: 

“Surprises to the upside.”

More exciting things are dead ahead.