What will earnings reveal?
The recent rise in global stocks has been surprising given the scale and size of lockdowns during the COVID-19 pandemic. The MSCI All-Country World Index has risen ~40% from the lows of March. This rally has taken many investors by surprise with the tech led Nasdaq even printing fresh highs recently too. The stay at home stocks like Amazon and Netflix have enjoyed the shutdown season as their earnings are projected to remain unhindered by COVID-19.
Earnings season ahead
The concern for some time has been that many companies earnings will be badly impacted by the shutdowns. In fact in Germany, according to a recent IFO study, >20% of all German companies are afraid of going bankrupt. Many sectors in the service industry are most at risk not just in Germany, but also globally. Travel agencies, restaurants, hotels, creative jobs and airlines are all at risk of folding during the current time. It still remains to be seen whether consumption returns to pre-Covid-19 levels. Also, with rising global COVID-19 cases, the risks of further lockdowns in some form or another are high.
The majority of earnings will come in the last week of July and the first week of August for Q2. This is when more than 50% of all the global member's are due to report. However, the early earnings releases will set the mood music. The estimates for earnings have recently flat lined , but that is really due to 80% of all US companies refusing to provide guidance over the last three months. See below:
The risk is here is that Q2 earnings fall hard and that weighs heavily on global stocks. The market has continually been rallying higher ignoring rising COVID-19 cases and showing a bias to the upside supported by the Fed and global fiscal stimulus. Is this where the party ends or does it continue through Q2 earnings season? I can see a case for both the bulls and the bears, so as a 'neutral' for now it will be fascinating to see how it works out.
