U.S. companies break low profit hurdle in coronavirus-hit quarter

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NEW YORK (Reuters) – A record percentage of U.S. companies are beating analysts’ forecasts this earnings season, giving investors a glimmer of hope in what is yet to be the slowest period of profit since the financial crisis.

FILE PHOTO: George Washington is seen with a medical mask imprinted on the dollar bills in this illustration taken March 31, 2020. REUTERS / Dado Ruvic / Illustration / File Photo

Over half of the second quarter results, 82.1% of companies reporting exceeded earnings expectations, which would be the highest in Refinitiv IBES data history since 1994.

In addition, the size of the beats is much larger than typical. S&P 500 companies beat earnings expectations by 21.7%, the highest level on record since 1994, according to Refinitiv data on Friday.

The latest big increase in numbers came at the end of last week, when results from Facebook and trillion-dollar companies Apple, Amazon.com, and parent company of Google Alphabet beat expectations.

In many cases, the estimates had been lowered so much ahead of the earnings season that they were easier to beat, quarterbacks said. Nonetheless, the results bolster the arguments of investors who are betting that the impact of coronavirus-induced lockdowns and layoffs on companies’ bottom lines may not be as severe as previously believed.

“What he’s saying is that there are pockets of absolute strength in American businesses,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

The tech results in particular suggest “there is spending going on in the world,” she said.

The S&P 500 is up nearly 4% since the start of results in mid-July, or 3.4% from its record closing February.

To be sure, the pace of the market rebound from March lows has slowed in recent weeks, with profits coming as the United States sees a resurgence of virus cases in many regions and economic numbers remain gloomy.

Second-quarter profits for the S&P 500 – which are expected to have fallen 33.8% from a year ago – are still expected to be the low point for this year’s earnings and the biggest quarterly decline since the financial crisis.

Data on Thursday showed jobless claims rose last week, as the economy suffered its biggest blow ever in the second quarter.

BofA Global Research strategists wrote in a recent memo that while margins ‘follow a hair’s breadth above expectations’ they are still expected to collapse and comments from companies suggest further cutbacks. ‘jobs.

Still, some companies managed better-than-expected results for the second quarter.

Investors were especially keen to hear from tech companies, the sector with the most weight in S&P 500 earnings.

With results so far from 36 of the 71 S&P 500 tech companies, second-quarter profits for the S&P 500 tech sector are now expected to rise 1.4% from a year ago from an estimated 8% decline on July 1, according to data from Refinitiv. .

The S&P Healthcare Index has also seen big improvements since July 1, thanks to strong results from UnitedHealth Group, drugmakers like Pfizer and others. Analysts now expect healthcare revenues to rise 1.1% from a 15.1% drop expected in early July, according to Refinitiv.

“The second quarter of 2020 has been a quarter with more uncertainty than I have ever seen in my life. Management has mostly suspended its advice, just as everyone has been blind to what the second quarter will bring, ”said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

And “it gave results generally better than the worst you can imagine. … Things are a little more positive than many people thought.

Reporting by Caroline Valetkevitch; additional reports by Sinead Carew; Edited by Ira Iosebashvili and Jonathan Oatis

Our standards:Thomson Reuters Trust Principles.

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