In the coming weeks, investors will focus on Wall Street’s second-quarter reporting season and the extent of the financial damage done by COVID-19 and the associated lockdowns and slashing of demand.
At the same time the reporting season will happen against the backdrop of a rewed and even more serious surge in US COVID-19 cases which having topped 57,000 on Saturday, now seem headed for the feared 100,000 a day level. Daily case numbers are up more than 40% in the past week alone.
That means analysts will have to start revising down their optimistic forecasts for third and 4th quarter earnings and revenue.
Roughly half of all companies in the S&P 500 index have withdrawn earnings guidance. In fact, around 200 of the 500 companies in the S&P 500 index have dropped guidance, leaving analysts and investors blind, according to FactSet.
The reporting season kicks off next week. This week there are only a few reports expected from the likes of Delta Airlines (which will be a big blob of red ink), Levi Strauss, Walgreen Boots (which is doing poorly).
The following week sees quarterly reports from the quintet of major banks who know kick off the season proper. JPMorgan Chase, Citigroup, and Wells Fargo are down to report Tuesday week and Goldman Sachs and Morgan Stanley later this week. Netflix, eBay, and Microsoft are also down to report next week as well, and being tech sector leaders, will set the tone for the overall market.
Analysts estimate that profits at blue-chip American companies fell 43.1% in the second quarter, according to FactSet. Earnings are expected to continue sliding in the second half of the year, ending with a 22% fall.
Driving revenue and earnings lower has been the impact on corporates from plunging and uncertain demand and disrupted supply chains.
So far the Dow has added about 3.3%, bringing its year-to-date decline to 9.5%, while the S&P 500 gained about 4%, and is now down 3.1% for the year. The Nasdaq is nearly 14% higher in the year to date, after taking another 4.6% leg up.
In a research note out June 30, DeutscheBank analysts wrote that “attention will focus on the US Presidential election in what looks to be a tight race, which has historically meant a range-bound market till the uncertainty is resolved, followed by a strong rally into year-end regardless of who won.”
But not if COVID-19 cases are continuing to ravage the US economy. That forecast also assumes that Donald Trump goes quietly if he loses the November 3 poll as the opinion polls now suggest he will.
The Australian June 30 reporting season starts later in July and hits full bore in August.