An epic stock market rally will be put to the test in the coming weeks as investors find out what executives expect in terms of earnings and profits in the coming periods.

The fourth-quarter season began Friday with better-than-expected results from some of the country’s largest banks. Despite record quarterly results

JPMorgan Chase.

& Co. and a few bright spots in

Citigroup Inc.

и

Wells Fargo

WFC -7.80

& Co. declined in all three companies, with Wells and Citi falling more than 6%.

The market reaction underlines the importance of these issues as major companies begin to announce their quarterly results and, more importantly, their forecasts for the coming quarters. While the results weren’t terrible, the stock took a big hit, a reflection of rising investor expectations, as the bank’s stock rose more than 10% above 2021 in Friday’s trading.

The fact that major indexes have risen to new highs this year, despite accelerating losses due to the coronavirus and questions about how this will affect the economic outlook, underscores the pressure on corporate CEOs to explain how they expect earnings to improve in 2021. The S&P’s slight rise of about 70% from its intraday low in March was acceptable to investors as many expect a strong rebound this year. Companies that fail to comply with the forecasts risk penalties, they say.

Whether or not they have a good quarter depends on what happens next, said Kimberly Woody, senior portfolio manager at Globalt Investments, which manages $1.9 billion. The good news about the future was appreciated in this market.

After closing the books for 2020, analysts estimate that corporate profits for the S&P 500 fell 13% for the year, according to FactSet. However, according to FactSet, S&P 500 companies were trading Thursday at 22.65 times expected earnings for the next 12 months, which is above the five-year average of 17.84.

Dozens of major companies will report this week, including a transportation company…

J.B. Hunt Transport Services Inc,

The health giant

UnitedHealth Group Inc,

Petroleum Services Company

Halliburton Co.

and semiconductor manufacturers

Intel Corporation.

Earnings for the S&P 500 are expected to fall 6.8% in the fourth quarter from a year ago, a significant improvement from the 32% drop in the second quarter, but below the levels that normally drive stock market records. Earnings estimates have risen since the beginning of the quarter and some investors believe the current forecast is a low bar for companies.

Stock buyers expect annual returns, and many investors say the market is moving forward despite the damage in 2020 because of the widespread belief that vaccines will help make the pandemic a thing of the past, allowing the economy to recover.

I think the market is watching the pandemic closely, and that’s why we’re seeing prices go up, said Greg Marcus, Managing Director of Private Wealth Management at UBS.

This is despite the alarming signs of how the pandemic has affected the economy recently: Last month, employers cut 140,000 jobs, ending seven months of job growth, and in December, US retail sales fell for the third consecutive month.

Earnings for the S&P 500 are expected to rebound 17% year-on-year in the first quarter and increase 46% in the second quarter. And economists have revised their forecasts for U.S. economic growth upward in light of the vaccinations and the possibility of additional help from Washington for households and businesses.

Equities, which are typically linked to the outlook for the economy, have performed well recently. Since the start of the fourth quarter, the S&P 500 Financials sector is up 28% and the Materials group is up 19%. The technology sector, which led the benchmark in 2020, grew by 9.1% during this period.

U.S. Bank Wealth Management increased its holdings in December by buying shares of mid-sized U.S. companies, said Lisa Erickson, head of the traditional investment group.

As we continue to see progress on the economic front with the vaccine, and as we see that companies have persevered under difficult conditions in 2020, that has really given us confidence that this year’s regions, which are more accustomed to rediscovery, can do better, she said.

The income outlook is positive for some of these cyclical groups. The Materials Sciences sector of the S&P 500 will post the best fourth quarter earnings growth, up 8.6%. Financial firms’ profits are expected to rise 3.5%, a significant improvement on the 24% decline expected at the end of September.

Lennar has benefited from Americans changing their lives in the past year.

Photo:

Bing Guan/Bloomberg News

Of the S&P 500 companies that reported earnings, most exceeded expectations. This includes Lennar Corp, which reported higher profits as low borrowing costs and changes in housing preferences boosted demand for homeownership.

SHARE YOUR IDEAS

What are you looking for this winning season? Join the discussion below.

Some investors hope that business leaders will shed light on pandemic-related changes in vaccine consumption habits.

We think some of the cost changes will be difficult to implement, said Matt Stucky, portfolio manager of Northwestern Mutual Wealth Management Company. When you buy a pet, it’s more than a 12-month subscription, which you spend on pet products.

Email Karen Langley at [email protected]

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