When it comes down to company earnings, we’re seeing a huge lag in revenue growth for companies in the service sector. Wyndham Hotels and Resorts (WH),for example, which reported first quarter results today, April 30, saw revenue fall to $303 million in the first quarter of 2021 from $410 in the first quarter of 2020. But, and I think this is the clear implication of the first quarter GDP numbers, those service companies will close that gap in the June quarter as companies open more services–Disney (DIS) opened its California theme parks today, for example–and consumers feel safer in going to theme parks or restaurants or gyms.
Data from Refinitiv published yesterday show that companies are beating estimates at a historic rate and that the amount by which they are beating projections is also at a historic high. Of the Standard & Poor’s 500 companies reporting so far, 86.8% have beat Wall Street projections. The average beat is a huge 23.5%. According to Refinitiv (where data goes back to 1994) that’s the highest percentage of companies to beat estimates for a quarter on record and also the largest average beat on record. Three things to think about.
After the close yesterday, April 29, Skyworks Solutions (SWKS), a key Apple supplier and a maker of radio frequency chips for smartphones and WiFi networking equipment, reported earnings of $2.37 a share on sales of $1.17 billion for quarter that closed on April 2 2021. That beat–slightly–Wall Street projections for earnings of $2.35 a share and sales of $1.15 billion. Year over year Skyworks earnings climbed 77% and sales rose by 53%. And what happened to the stock in after-hours trading? It got punished. Shares dropped to $183.37, a loss of $14.49 a share from the day’s close at $197.86. That’s a loss of 7.32%. In a market driven by expectations for constantly higher growth, I think you can see the problem.
Today, April 21, as of 3 p.m. New York time, the major indexes were on track to break their three-day losing streak. At 3 p.m. the Standard & Poor’s 500 was ahead 0.65% and the Dow Jones Industrial Average had gained 0.74%. The NASDAQ Composite was higher by 0.73% and the small cap Russell 2000 had moved up 1.94%. Why the big change in tone from earlier in the week?
At its “Spring Loaded” event tomorrow, April 20, Apple (AAPL) is expected to announce changes to its 11-inch and 12.9-inch iPad Pro models. Analysts expect that both models will include Apple’s new A14X chip and that the high-end iPad will come with a mini-LED display. In a research note Wedbush analyst Dan Ives wrote that a mini-LED display, “will be a game changer around color performance, dimming capabilities, and high contrast capabilities for the consumer.” Apple’s iPad segment faces a tough comparisons for the second half of the 2021 fiscal year, as work-from-home and at-home education drove double-digit iPad growth in the second half last year.