The Economist February 13th 2021 59
BusinessCorporate earningsHarbingers of boom
B
efore the covid-19 pandemic inves-
tors favoured companies with strong
sales growth, low debt and high return on
assets. In the past three months, they have
been ploughing money into smaller, un-
derperforming firms that have barely sur-
vived the coronavirus recession. A robust
economic recovery, Wall Street seems to
think, will pull the most covid-impaired
away from the abyss and towards financial
outperformance. Right now, says Jonathan
Golub of Credit Suisse, an investment
bank, “the market is rewarding failure”.
The bet on weaklings is the latest sign,
if more were needed, that 2020 marked a
weird year in corporate history. Far from
imploding, as many feared after the virus
clobbered stockmarkets in March, America
Inc is looking astonishingly healthy. It did
not take long for analysts to start revising
their profit forecasts back up (see chart 1).
Even then, four in five big firms that have
reported their latest quarterly results beat
projections. Their aggregate earnings ex-
ceeded estimates by nearly 17%.
The losers—chiefly in industries likehospitality, travel and energy, which rely
on people mixing or moving about—lost a
lot. Of the 311 s&p500 firms that have pre-
sented full-year results, 42 ended 2020 in
the red, up from 17 the year before. Theirlosses added up to $173bn, nearly five times
as much as the comparable figure in 2019.
But the winners won big: $832bn, all told,
just 13% below last year’s profit pool. The
tech titans without whose products social-
ly distant shopping, work, socialising and
entertainment would be tough made more
money than ever (see chart 2 on next page).
Wall Street is wagering that both winners
and losers have room for improvement.
Big firms are the most bullish. A survey
last month by Corporate Board Member, a
trade publication, found that overall confi-
dence has risen at public companies. Two
in three board members rated their firm’s
outlook “very good” or “excellent”. Three-
quarters of chief executives expect reve-
nues and profits to increase, compared
with less than two-thirds in December.
Half predict increased investment.
Lacking the access to capital enjoyed by
bigger firms, smaller ones in the Russell
2000 index were bleeding red ink mid-
pandemic. Now things are looking up even
for them. In the last quarter the Russell
2000 posted a gain of 31%, against 12% for
the s&p500. The latest survey by Vistage,
an executive-coaching outfit, found that
64% of bosses at small and medium-sized
firms plan to expand their workforce this
year, up by a fifth from the previous quar-
ter. Two-thirds think sales will increase in- Over half expect profitability to rise.
There are two main reasons for this per-
kiness. First, investors are pricing in the
successful rollout of vaccines in America
NEW YORK
America Inc has survived the weirdest year in modern corporate history.
What next?→Alsointhissection
60 Tradeunionstargetbigtech
62 DeutschlandAGv Brexit
62 Indiaperusesprivatisations
63 Bartleby:Diaryofa plagueyear
64 Schumpeter: Musk, Ma and
the cult CEOSecond opinions
S&P 500 earnings-growth forecasts
% change on a year earlierSource:FactSet1100-10-20-30-40-502020 2021FJDNOSAJJMAMFQ1 2021Q4 2020Q3 2020Q2 2020