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In the first half of 2021, the total profit of companies from S&P 500 grew to a record. According to analysts, in the second half of the year, corporate profits will also be large. But will that be enough?, to stock market continued to grow?
This week in the U.S. will begin the reporting season. Results for the quarter will be published by large investment banks, BlackRock and Delta Air Lines. According to consensus forecast, in the third quarter, the total profit of companies will grow by 27% compared to the third quarter of last year. It's still a lot, although in the first and second quarters, profits grew even more - by 53 And 92%. All because of the low base effect: in early 2020, the pandemic began and the revenues of many companies fell sharply..
Increased corporate profits are the main reason for the growth of shares. So the business shows the ability to earn money and bring income to investors. Buyback and dividends also depend on the size of the profit.
Usually the second half of the year for business is better than the first, because at the beginning of the new school season and on holidays, people spend more. This year may be different.. Rise in prices, shortage of employees and logistics problems have a negative impact on the profitability of companies.
So, clothing sellers like Nike are already facing a shortage of goods due to closed factories in Asia and long deliveries.. And Walmart retail chains, Target and Costco even rented their own vessels., to deliver everything you need for the festive season. Such expenses can significantly reduce the profits of companies in the second half of the year..
Current ratio of companies' market capitalization to expected next year's profits, or forward P coefficient / E, is 21. It's on 24% more than the average for the last 25 years. As considered in FactSet, all because of the high expectations of investors. In the first two quarters of 2021, the company's profit exceeded analysts' forecasts for 27 and 17 percentage points. Investors now, seem to be, waiting for something like this.
According to DataTrek Research, total profit for the third quarter should exceed the consensus forecast by at least 10 percentage points, to justify current stock prices. "We don't say, that this reporting season will be the most historic, but the third quarter of 2021 is very close to that.", — said in the company.
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