What's going on?

It�s about time investors had a nice surprise: US companies have in aggregate reported better-than-expected results so far this earnings season.

What does this mean?

Two-thirds of American companies have now updated investors on how they performed last quarter, and things are looking promising: more firms are beating analysts� expectations than the historical average, and the beats are bigger too. In fact, the average profits of US companies look set to grow 1.7% compared to the same time the year before � the first time they�ve grown at all since 2019.

All this might be cause for a small, socially distanced celebration � and not just because analysts were predicting that earnings would drop by 9%. It might also suggest companies are finally seeing the back of the slump, and encouraging analysts � who are now projecting strong earnings growth for the rest of 2021 � to feel more optimistic about the future.

Why should I care?

For markets: Pandemic winners can�t stop winning.�

These better-than-average earnings have been driven significantly by the tech, financials, and communication services industries. They’re the ones that have benefited most of all from our new pandemic-driven routines, after all � everything from the uptick in retail investing to the rise of online shopping. Energy and real estate companies, meanwhile, have continued to fall short.

The bigger picture: Europe is playing catch-up.
European companies have taken analysts by surprise too: their fourth-quarter profits beat analysts� estimates by 7%. But Europe�s still a long way behind the US, which might be because its stock market is made up of far fewer fast-growing tech companies. Europe does, however, have more economically sensitive �cyclical� companies � think banks and energy companies � which should work to its advantage when the recovery kicks in. That might be why JPMorgan and Goldman Sachs are both backing the region�s stocks to perform well in 2021.