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High US earnings trend points to strong recovery

Earnings revisions, or the changes that sell-side analysts make to forecasts they have already made, are also running hot. For several months, upgrades to predictions of future earnings have outnumbered downgrades by a large margin. As a result, investors have become inured to such positive ‘surprises’. We might, therefore, not see a corresponding jump in share prices when these numbers are released.

Why we shouldn’t keep staring in the rear-view mirror

Earnings season should be as much about looking ahead as behind. For investors, this means paying attention to companies’ forward guidance, as well as their past quarter results.

While recovery prospects loom large, there are still challenges ahead. Some of the biggest companies in the technology, media and telecoms sectors benefited hugely from the lockdown environment. As their customers’ time (and wallets) moved online, their profits flourished. But can these companies sustain the trend once economies fully reopen?

There are also legislative changes to consider.

It is true that US President Joe Biden’s infrastructure stimulus plans could create winning stocks in some sectors. But some businesses might find themselves funding the spending.

The Made in America document, recently published by the US Treasury, points to more fairness in taxation. Biden aims both to fund his generous stimulus package and to redress the balance. He wants to do so by tackling tax evasion at large multinationals. If his plans make it through Congress, such changes could have a big effect on certain companies that have been deemed to be making abnormal profits.

Looking at corporate America’s way ahead, there might be bumps in the road, but new routes could also be about to open up.

It looks like there will be several quarters of strong profit, though this is likely to be concentrated in certain sectors. This should create opportunities for investors in the months to come.

Karolina Noculak is investment director, multi-asset investment, at Aberdeen Standard Investments