The S&P 500 is on track for the best quarterly earnings growth since 2009 as companies smash expectations

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Company earnings have consistently beaten Wall Street estimates in the second quarter.

S&P 500 companies are on track for the best earnings growth since 2009, with companies smashing estimates as the US economy bounces back to life from COVID-19 lockdowns.

The strong quarter is helping support stocks despite high equity prices, rising inflation, and the threat of the delta coronavirus variant.

Earnings for S&P 500 companies are expected to grow 78.1% year-on-year in the second quarter, according to figures from financial data company Refinitiv, released Friday. That would be the best quarterly performance since the final three months of 2009, during the initial rebound from the financial crisis.

Around a quarter of the 500 companies that make up the benchmark US stock index have reported. Those in the industrial, consumer discretionary, and financial sectors are set to do the best as they profit from the reopening of the economy and favorable comparisons to last year’s weak second-quarter earnings.

So far, 88% of S&P 500 companies have beaten earnings per share estimates for the second quarter, according to data provider FactSet.

The strong results put the S&P 500 on track to be the best quarter for beats since FactSet started tracking the data in 2008. The current record was registered in the first quarter of 2021, when 86% of companies beat estimates.

Read more: GOLDMAN SACHS: 33 stocks to buy right now for strong returns of at least 15% and minimal risk as the economic reopening helps equities grind higher into year-end

And companies are raising their expectations for earnings and sales as the economic rebound continues. For example, Coca-Cola stock jumped on Wednesday when it increased its revenue and earnings outlook, citing the strong economy.

Investors have not reacted strongly to the second-quarter earnings, given that the S&P 500 has already soared more than 90% since its pandemic-induced crash in March 2020.

But the strong earnings are helping the benchmark US stock index hover at record highs.

JPMorgan analysts, led by Dubravko Lakos-Bujas, on Tuesday upgraded their year-end target for the S&P 500 from 4,400 to 4,600, which would be roughly a 5% increase from Friday’s level.

The index “should be supported by strong earnings growth and capital return until 2023,” Lakos-Bujas and colleagues said in a note.

Importantly for investors, profit margins are strong despite rising inflation and some reports of higher costs. John Butters, senior earnings analyst at FactSet, said net profit margin for the S&P 500 for the second quarter is expected to be 12.4%.

“If 12.4% is the actual net profit margin for the quarter, it will mark the second-highest net profit margin for the index since FactSet began tracking this metric in 2008, trailing only last quarter’s net profit margin of 12.8%,” he said.

Yet, there are risks ahead, not least the fact that the coronavirus pandemic is far from over. Delta variant cases have soared in Britain, and survey data suggests the numbers are slowing the country’s economic recovery.

Cases are now on the rise again in the US, contributing in part to a sharp sell-off on Monday, which saw the S&P 500 drop 1.6% and the Dow Jones fall 2.1%.

However, many investors are hoping high vaccination rates can keep advanced economies ticking over. Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note: “We see reasons to look beyond the delta variant headlines and stay risk-on, with a tilt toward reflation and reopening beneficiaries.”

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Nike just notched its highest quarterly sales in 50 years. Here’s 5 reasons why the sneaker brand is crushing its competition and coming out of the pandemic stronger than ever.

LeBron James Dwyane Wade alley oop
  • Nike made over $12 billion in sales in its most recent quarter, earning over $1.5 billion in profit.
  • The company took advantage of a strong consumer market to deliver the best performance in its history.
  • “These are times when strong brands can get stronger,” CEO John Donahoe said.
  • See more stories on Insider’s business page.

Nike’s latest quarterly performance was more than the business equivalent of a slam dunk – it was a financial alley-oop. When the game tilted in its favor in the fourth quarter, the company ran its play with a risky setup that finished with a flourish.

After making a radical shift to its business model four years ago, the Oregon-based shoe and apparel maker came through the pandemic with the best fiscal quarter in its 50-year history, raking a profit of $1.5 billion on total sales of more than $12 billion.

“These are times when strong brands can get stronger, and each quarter this reality becomes even more clear,” CEO John Donahoe said in an earnings call on Thursday.

Pent-up demand and a strong consumer market certainly helped Nike along, but GlobalData retail analyst Neil Saunders said the company wasn’t just lucky.

“You have to give credit where credit is due, because not everyone is seeing quite such an uplift,” he said. “Nike’s strategy is good and it’s right, but the market is also very strong, so the combination of the two produce very good results.”

Here are five reasons Saunders says Nike is performing so well this year.

1. People want to treat themselves and stay active after a hard year

Up first is the simple fact that companies generally do better when people have money to spend, and US consumers are flush with stimulus cash and other savings from a year of uncertainty because of the coronavirus pandemic.

“That is translating into a lot more spending, especially on products that people buy to treat themselves,” Saunders said. “People like new pairs of sneakers.”

Not only that, but consumers desire to stay active and healthy means Nike’s products are some of the first items on their shopping lists.

2. Retailers still love the swoosh

Even though Nike has been shifting more to a direct-sales model, consumer demand for the brand gives retailers a lot of reason to load up on the company’s products.

“A lot of retailers are very confident about continued spending and they’re putting a lot more money into buying inventory to make sure that they have enough stock, so that’s been very helpful to Nike,” Saunders said.

3. Sneakerheads are big fans of special editions and collectibles

Saunders also said Nike has also enjoyed a small but helpful lift from the resale market. The company’s ability to tap into its fans’ appetite for new designs to trade in secondary marketplaces has been a good source of sales over the past few quarters.

4. Nike is connecting more directly to customers

The cornerstone of Nike’s pre-pandemic strategy has been a greater emphasis on cutting out the retail middleman – even Amazon – and selling directly to customers.

This has not only helped improve profit margins, Saunders said, it helps create a stronger connection with customers.

In the call with analysts, CEO Donahoe said called it a “virtuous cycle” of consumer insights that influences everything from product design to inventory management.

5. The SNKRS app is making the brand more sticky

Nike has made a major push into the digital space with its SNKRS app that blends content and commerce in a major way.

The app experienced nearly 80% growth in monthly active members from March-to-May and now boasts 300 million members, but Saunders says its a longer term play.

“They want to be able to engage with their customers more frequently understand their fitness and health habits, so it’s all about creating stickiness around the Nike brand,” he said. “Obviously an app is the perfect way to do that.”

“It is a very interesting play, but I think it’s a slower burn,” he added.

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