coronavirus. “Data-reactid =” 16 “> The approach to the profit season will please, not thanks to the coronavirus.
dividends and share buybacks – will be significantly reduced with companies engaged in liquidity conservation and restructuring. “Data-reactid =” 17 “> Just take a look at what investors will face as they are hit in the head with volumes of profit reports starting with banks and industrials this week. First, the likelihood that some large enough companies will have no profits per se – rather large losses as the coronavirus blows through their financial statements. Second, the sweeteners in stock ownership – dividends and share buybacks – are drastically curtailed, with companies moving into the cash-conservation and restructuring mode.
Not ugly enough? Well, then you’ll have CFOs who are unlikely to offer any form of financial guidance – that is, if they haven’t already anticipated the outlook in the quarterly pre-announcements. Good luck with modeling future earnings, people. Meanwhile, profit calls, where executives often try to turn positive rhetoric, regardless of the environment, will for the most part be devoid of that hope which could generally rally action despite a bad quarter.
companies packing spam or twinks, this season of profits will be mind-wrenching and potentially deadly for the trading account. “Data-reactid =” 19 “> Unless you are an investor in companies that condition spam or twinkies, this season of profits will be mind-bending and potentially deadly for the trading account.
stock market to rally much more than it already has, “Miller Tabak, chief market strategist Matt Maley said. “Data-reactid =” 20 “>” It will take a strong and lasting improvement in profits to allow the stock market to rebound much more than it has already done, “said Matt Maley, chief market strategist at Miller Tabak.
That’s right, Matt.
Wall Street is sometimes weird
former analyst, I understand. You speak frequently to management teams and sometimes travel with them on the road to meet investors. You do it with them over a steak dinner that’s put on the corporate card. After a while, you could easily become a spokesperson for management in how you articulate a thesis on an action and model future earnings. “Data-reactid =” 23 “> It never ceases to amaze me about the optimism of Wall Street analysts. be. As a former analyst, I understand. You speak frequently to management teams and sometimes travel with them on the road to meet investors. You chat with them over a steak that is put on the corporate card. After a while, you could easily become a spokesperson for management in how you articulate a thesis on an action and model future earnings.
Obviously, this should not happen and does not apply to everyone on the street, but it is worth calling.
In this vein, Wall Street is currently an excellent spokesperson for Corporate America. This year will be absolutely horrible for sales and profits, but that is by no means factored into analysts’ estimates before one of the most atrocious profit seasons of all time.
S&P 500 companies’ first quarter sales are expected to increase 0.9%, according to Refinitiv data. Earnings are expected to drop 7.5% for the quarter. For 2020, sales and profits of the S&P 500 are expected to fall by 0.9% and 7.7% respectively. The worst it will get for profit, according to Refinitiv data, is an 18% year-over-year drop in the second quarter.
These estimates must be a sick joke prepared by Wall Street analysts shooting White Claw while playing on spreadsheets, right? Unfortunately for investors, this is not the case – and optimistic forecasts are about to be reduced substantially in the coming weeks, possibly at the expense of the recent market recovery.
Lori Calvasina “We are still at the start of the downward revisions to EPS. Further downward revisions could keep stock market conditions volatile for the time being. “” Data-reactid = “39”> warns Lori Calvasina, head of US equity strategy at RBC, “We are still in the early stages of the downward revisions to EPS. could keep stock market conditions volatile for the time being. ”
Calvasina is one of the few Wall Street strategists to stay the course with its S&P 500 profit estimates – it expects an 18% drop in profits in 2020, almost three times worse than the current consensus.
“Previously, the macroeconomic assumptions in our model assumed a recession of garden varieties in the United States in 2020. We adjusted the model so that it was cooked in a GDP scenario more in line with the consensus of selling economists who changed their forecast in late March and early April. In general, our model is baking real GDP of -25% in 2Q20 and expects the economy to start coming out of the hole in 3Q20, “said Calvasina.
In my experience, even the worst profit seasons have silver liners.
For example, I remember that dollar stores such as Dollar Tree and Dollar General did decent business during the Great Recession, while cash-strapped consumers abandoned Walmart and Target. Of course, that meant the US economy was falling from a cliff, but amid the storm of bad news, increases in sales at retailers of all kinds were a welcome site.
global economic downturn due to a major health pandemic. This will lead to breathtaking earnings reports, brutal executive commentary and surprising initiatives designed to survive the aftermath of the pandemic (think of big announcements of corporate restructuring, penalizing debt increases, etc.). “Data-reactid =” 49 “> But these profits the season will be different from that of many Wall Street. A complete shutdown of the global economy due to a major health pandemic. This will lead to breathtaking revenue reports, brutal management comments and surprising initiatives designed to survive the fallout from the pandemic (think of major restructuring announcements, penalizing debt increases, etc.).
All this will suck, powerfully. The sooner investors realize and plan it, the better.
The first job at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.“Data-reactid =” 51 “>Brian Sozzi is editor and co-presenter of The first job at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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