Lockdowns in 2021 threaten to slow first-quarter earnings recovery By Reuters

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© Reuters

By Thyagaraju Adinarayan LONDON (Reuters) – A significant part of the recovery in corporate earnings expected in the first quarter is at risk of rolling back further, as lockdowns and mobility restrictions in several countries cloud hopes of a faster economic recovery, investment banks said. . China announced lockdowns in four cities and European countries revealed longer and stricter coronavirus restrictions on Wednesday, dampening hopes of a return to normalcy and raising concerns about further economic damage in 2021. Germany, Britain and the Netherlands They indicated that the strict COVID-19 restrictions would last until early February and Italy said it would extend its state of emergency until the end of April. Japan also extended a state of emergency in Tokyo, hurting prospects for a long-delayed Summer Olympics. Those actions elicited words of caution from major investment banks. Goldman Sachs (NYSE 🙂 said signs of pessimism were approaching with 48% of its clients expecting economic growth to exceed expectations for 5.3% growth in 2021. Analyst earnings estimates for The first quarter also does not reflect the concern: Europe is seen reporting a whopping 40% increase in profits, while the United States is forecast to see a 16% increase. “We see downside risks in this earnings season,” BofA equity strategist Savita Subramanian said in a note, highlighting a consensus on US earnings that points to a drop of just 3% versus levels. pre-COVID 2019. “While additional stimulus could create upside risks, the rise in COVID cases suggests a warmer recovery from here.” There were some cracks appearing in expectations of a V-shaped rebound in earnings, and the pace of upward revisions in global earnings estimates cooled in recent weeks. Still, it was noted that US and European companies reported earnings growth of 20.8% and 38% respectively for 2021, according to Refinitiv data. Vaccine launches have been one of the main reasons for the optimistic outlook. “There is widespread hope that the launch of the Covid-19 vaccine in 2021 could normalize the underlying real economy and increase profits, jobs and margins,” said Steen Jakobsen, chief investment officer at investment bank Saxo. “The risk is that the new mutations of the virus will dilute our attempt to normalize our society with the first-generation vaccine.”

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