Record Earnings Fueling Equity ETFs

With Q1 earnings season in full swing, investors expect S&P 500 profits to grow by nearly 34%.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

Earnings season is upon us, with a third of S&P 500 companies reporting their numbers this week. The latest figures—which detail companies’ performance during the first quarter—will be closely scrutinized by investors expecting a brisk rebound in profits from last year’s pandemic lows.

While it’s still early in the reporting season, of the companies that have already put out their numbers, 84% have beaten analyst estimates, according to FactSet. At the same time, those companies beating estimates are doing so by an enormous margin—23.6%—compared with the more typical 6.9% five-year average.

Both those metrics—the beat rate and the magnitude of the beats—are all-time highs in FactSet’s data set going back to 2008.

Strongest Growth Since 2010

It’s no wonder then that stocks have been racing to record levels, seemingly on a daily basis. Investors expected a profit rebound, but not to this extent.  

The growth has been phenomenal. If you combine the actual results from the early reporters and the expected results from the companies yet to report, earnings are anticipated to jump 33.8% in Q1, making for the highest growth rate since the third quarter of 2010.

Of course, Q1’s strong growth has a lot to do with just how weak earnings were in 2020’s Q1. That was the first quarter when the pandemic’s effects really began to be felt, and S&P 500 earnings fell by 14.1% as a consequence. But even if you strip out the effects of the pandemic, profits would be at an all-time high.

The trillions of dollars of monetary and fiscal stimulus that has been pumped into the economy has no doubt helped. U.S. GDP growth is expected to be 6.4% this year, per the International Monetary Fund, just ahead of the 6% growth expected for the world as a whole.

That growth is directly translating into meatier profits for corporations.

Easy Comps

As always, this quarter’s profit growth isn’t expected to be even across sectors. The Q1 expected growth rate for financials stands at a whopping 126.3%. On the other hand, industrials may see an 18% decline in their profits.


TickerSectorQ1'21 Earnings Growth*2021 Earnings Growth*YTD Return (%)
XLYConsumer Discretionary112.4%55.0%11.1%
SPYS&P 50033.8%29.0%12.0%
XLVHealth Care24.6%13.8%8.4%
XLCCommunication Services17.2%13.3%13.3%
XLPConsumer Staples3.2%5.4%2.5%
XLREReal Estate2.7%4.7%16.9%

*FactSet estimates


Much of this variation has to do with what happened in 2020. For instance, banks reported big profit declines last year on expectations that they would be hit with substantial credit losses. But with the economy rebounding so fast, the losses never materialized, so now the banks are reversing those “credit loss provisions.”

Consumer Trends Flip

In the case of consumer discretionary, companies in that sector were among the biggest causalities of the lockdown measures instituted early in the pandemic. With consumers not able to go out, businesses like brick-and-mortar retailers and apparel manufacturers were hammered. Those trends are now moving completely in the opposite direction as consumers flock back to stores en masse.

On the other hand, it’s the reverse for consumer staples companies. As many people vividly remember, toilet paper and household cleaning products were some of the most sought after products at this time last year.

Staples companies were actually able to grow their sales despite the pandemic, so it’s not a surprise to see their growth rates slow this year with them not benefiting from those easy year-over-year comparisons.

Looking Ahead

Despite the significant vagaries in the reported first-quarter earnings across sectors, growth rates are expected to even out as we head into the rest of the year. There will still be some variation, but every one of the 11 S&P 500 sectors is forecast to grow its earnings for 2021 as a whole.

That averages out to expected growth of 29% for the S&P 500 in 2021. However, if Q1 earnings continue to come out strongly, expect that number to head higher.

 Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2

Sumit Roy is the senior ETF analyst for, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for, with a particular focus on stock and bond exchange-traded funds.

He is the host of’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays,’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.