All earnings report periods are important, but following the large drop in earnings expectations early last year and the relatively slow recovery, fourth-quarter 2020 results and corporate comments about 2021 prospects could be unusually significant.

Analysts begin assembling earnings estimates long before a reporting period starts. Typically, the aggregate estimate of S&P 500 earnings is highest when these estimates first appear. They then tend to slip through the weeks and months that follow. Chart 1 showing the 2020 S&P 500 weekly earnings estimate is a good example. The virus impact clearly had a huge hand in shoving the estimate lower, but the estimate was falling many weeks before the virus became an issue.

The 2021 estimate (Chart 2) that first appeared in mid-July 2020 varied from the normal pattern, as the potentially depressing effects of the virus on businesses were well known at that time. After declining for 11 weeks, the estimate began to recover as businesses at least partially reopened and prospects for vaccine distribution improved.

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