July 20, 2020
AN EARNINGS SEASON TO FORGET
Ryan Detrick, CMT, Chief Market Strategist, LPL Financial
Jeffrey Buchbinder, CFA, Equity Strategist, LPL Financial
This earnings season may be one to forget. We will see one of the biggest year-over-year quarterly declines in S&P 500 Index profits ever, and we will hear a lot about uncertainty facing corporate America as COVID-19 continues to impact many companies in the United States and globally. But it may not all be negative.
ESTIMATES MAY BE TOO LOW
The unprecedented nature of the COVID-19 lock downs and widespread withdrawal of corporate guidance has set up an unpredictable earnings season. The magnitude of the decline we are likely to see may make this an earnings season to forget.
As tough as it is to find a bright side in an estimated 40% collapse in S&P 500 Index earnings per share (EPS), there are several reasons to think the season may be better than analysts’ estimates have suggested. First, second quarter guidance has been better than average—55% of the guidance that has been provided has been negative, well below the five-year average of 69%, according to Fact Sheet.
Second, recent economic data has mostly exceeded expectations, particularly for jobs and retail sales. The Citigroup Economic Surprise Index—a measure of the frequency that economic data is exceeding expectations—stands at an all-time record high for the United States. Bloomberg’s version of the same measure is very close to a record high.