Lockdowns in 2021 threaten to gradual the worldwide restoration in earnings within the first quarter

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By Thyagaraju Adinarayan and Caroline Valetkevitch

LONDON / NEW YORK (Reuters) – Much of the global corporate earnings rebound expected in the first quarter threatens to be further pushed back as lockdowns and mobility restrictions in several countries tarnish hopes for a faster economic recovery, investment banks said.

China announced lockdowns in four cities and European countries revealed stricter and longer coronavirus restrictions on Wednesday, shattering normal hopes and sparking concerns about further economic damage in 2021.

Germany, the UK and the Netherlands said strict COVID-19 restrictions would apply until early February, and Italy said it would extend its state of emergency until the end of April. Japan has also extended the state of emergency in Tokyo, which hurts prospects for an already belated Olympics.

In the United States, massive home-stay orders resumed last month in California, the most populous state, as infections increased.

These measures worldwide drew caution from major investment banks and other market watchers.

"An additional wave of COVID is among the top risks to be monitored this year," said Vincent Manuel, global CIO at Indosuez Wealth Management.

"For the past two quarters, both Europe and the US have been trending positive earnings momentum from within the value segments of the market. Now it is true that if disruptions were caused by COVID, negative revisions would be triggered for the first quarter however, it is more important that the earning capacity recovers in subsequent quarters. "

Analysts' earnings estimates for the first quarter didn't reflect concern either – Europe is seeing earnings jump a whopping 40%, according to IBES data from Refinitiv, while US company earnings are expected to rise 16%. Estimated first-quarter earnings growth for the S&P 500 has increased slightly since Jan. 1.

Business advice for the first quarter and 2021 will be central to investors in the coming weeks. This week marks the start of fourth quarter 2020 earnings for U.S. companies. Results from JPMorgan Chase (NYSE 🙂 and other major banks are expected on Friday.

"We see the risk of a downward forecast this earnings season," BofA equity strategist Savita Subramanian said in a statement Wednesday, highlighting a consensus on US earnings pointing to a drop of just 3% from pre-COVID levels. 19 in 2019 points out.

"While additional impulses could harbor upside risks, rising COVID cases point to a lukewarm recovery from here."

There have been some cracks in expectations of a V-shaped earnings rebound, with the pace of upward revisions in global earnings estimates slowing in recent weeks.

(Graphic: Slowdown in global earnings improvements –

Many companies are still affected by the pandemic. Coca-Cola (NYSE 🙂 Co announced last month it would cut 2,200 jobs worldwide, including 1,200 in the US, as the virus affects the economy.

According to Refinitiv, based on MSCI indices, US and European companies posted earnings growth of 20.8% and 38% respectively for 2021.

Some US strategists believe that consensus forecasts may underestimate the expected recovery in the economy.

Jonathan Golub, chief US equities strategist and head of quantitative research Credit Suisse (SIX 🙂 Securities last week raised its 2021 targets for the S&P 500, stating in a report that "the likely avalanche of pent-up consumer demand cannot be ignored".

The introduction of vaccines was a major reason for the rosy outlook.

"There is widespread hope that introducing COVID-19 vaccines in 2021 can normalize the underlying real economy and increase income, employment and margins," said Steen Jakobsen, chief investment officer at investment bank Saxo.

"The risk is that new mutations in the virus will water down our attempt to normalize our society with the first-generation vaccine."

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