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Second quarter earnings will be a replay of the first

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This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Tuesday, June 29, 2021

Wall Street tries to catch up with corporate America, again 

The second quarter wraps up tomorrow, which means we're just about two weeks out from the start of second quarter earnings season. 

And the big story for this reporting period is set to be the same as the one that dominated the first quarter: analysts are having trouble keeping up with corporate America. 

Data from FactSet published last Friday showed a record 66 of companies in the S&P 500 have offered guidance above Street estimates for Q2. The prior record of 59 came ahead of Q1 earnings. And, as we covered several times in the Morning Brief, Wall Street just could not keep pace during the first three months of 2021. 

FactSet's data also shows that companies are starting to offer guidance more widely, a practice that vanished during the pandemic. Uncertainty abounded as Wall Street and public companies struggled to assess the economic impact stemming from COVID-19. 

Yet in the run up to second quarter earnings, some 103 members of the S&P 500 have offered an outlook for their results in the current quarter, up from 53 companies in this same period last year. 

Nick Colas, co-founder at DataTrek Research, wrote to clients in a research note published Monday that while the number of businesses offering guidance for Q2 is only about 20% of the index's total members, this data "says the Street is likely still too conservative for most of the rest of the index's constituents." 

In other words, forecasts need to come up — or else we'll get a replay of the same narrative in the next reporting period. 

"This fits into our longstanding thesis that the Street’s aggregate $44.79/share for Q2 2021 S&P 500 earnings remains too low," Colas added. 

"Remember that Q1 2021 came in at $49/share. Why would Q2 be any less than that, given incremental economic growth?" the analyst asked. "Takeaway: Q2 2021 earnings season needs to show real upside to Wall Street expectations to keep the current U.S. bull market on track, and the last 2 weeks' 'guidance season' confirms that it should."

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

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