Daily Spotlight: 4Q EPS Season Gets Underway

The big banks are typically the first to report earnings, and those announcements are about to begin. The second- and third-quarter earnings seasons were historically bad, while coming in slightly better than abysmal expectations. We note that 3Q EPS represented sequential improvement compared to 2Q, which was the trough of the earnings recession. By our calculations, S&P 500 earnings declined 16% in 3Q after plummeting 36% in 2Q. Our model assumes further improvement for 4Q20, with a decline of 3%. Taking all this into account, our 2020 estimate for S&P 500 earnings from continuing operations is $135. We expect further improvement (and outright growth) in 2021 and our forecast for 2021 EPS from continuing operations is $168. Our estimates imply a high-teen percentage decline for 2020, followed by 25% EPS growth for 2021. Finally, our preliminary EPS forecast for 2022 is $191. Our 2022 estimate assumes 15% EPS growth.