First quarter earnings season kicked off last week, and so far, the numbers have been very good. To break it down, earnings are a company’s net income that many people believe is the most important part of a company’s financial statements. Professional analysts create expectations for these companies and make an educated guess on how the company performed over the previous quarter. Usually, if a company beats expectations, their stock tends to rise the next trading day. If a company falls short of expectations, their stock usually falls the next trading day. However, this is not always guaranteed. “For example, Amazon (AMZN) missed its estimates for several quarters … investors were able to understand the long-term potential, and it continued to attract investors” (Investopedia.com). Big banks in the first quarter have smashed their expectations and could lead to another huge market rally. “To date, 34 companies in the S&P 500 have reported first-quarter earnings. Of those, 88% have beaten their 1Q2021 EPS estimates by an average of 22%, according to the Earnings Scout” (CNBC) USBancorp beat their expectations by 49%, JPMorgan by 48%, and Citigroup by 28% (CNBC). There are multiple theories as to why these beats are so high. One theory is that as the economy reopens, business earnings will accelerate and finally start to get back to normal. If this statement is true, the big question is, could this be a start to another large market rally?
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