By Mark DeCambre
Wall Street’s got coronavirus relief on the brain, and the fervent attention on Congress signing off on additional fiscal aid has detracted from the busiest coming stretch of quarterly corporate earnings of the quarter.
In fact, more than one third of the S&P 500 index components, or 186 companies, are set to report third-quarter results in the final week of October, FactSet senior analyst John Butters said in email.
Thus far, earnings mostly have been a sideshow for investors who have been fixated on whether Congressional lawmakers and the White House can achieve an accord on another round of funding for U.S. businesses and workers, hit by the COVID-19 pandemic.
Investors shouldn’t be faulted for closely watching the drama on Capitol Hill because trillions of dollars more flowing into the economy could arguably do wonders in helping to sustain the current economic recovery, economists say.
But next week’s earnings reports bear watching because some of the biggest companies will be reporting results, with many expected on Thursday, including the majority of a contingent of stocks known as FAANGS.
Facebook /zigman2/quotes/205064656/composite FB -2.04% , Apple /zigman2/quotes/202934861/composite AAPL -1.01% , Amazon.com /zigman2/quotes/210331248/composite AMZN -0.07% , and Google parent Alphabet Inc. /zigman2/quotes/202490156/composite GOOGL -1.34% /zigman2/quotes/205453964/composite GOOG -0.64% report on Thursday. Netflix /zigman2/quotes/202353025/composite NFLX +0.49% reported results last week.
“As far as next week, there are so many big names reporting, including many on the same day—Apple, Alphabet, Facebook, and Amazon all report on Thursday,” Jim McAllister told MarketWatch via email.
“Given the fact they represent over 16 percent of the S&P 500 [by market value], their results could very well have a big impact on the market,” he noted.
So far, however, S&P 500 blended earnings, including actual results and forecasts, show a decline of 16.5% in the third-quarter, with 27% of companies reporting. If that level of deterioration in earnings eventuates, it would represent the second-steepest year-over-year earnings decline since the second-quarter of 2009 when it declined by 26 .9%.
At the sector level, nine of the 11 sectors in the S&P 500 index are reporting a year-over-year decline in earnings, led by energy (-123.6%), FactSet reports.
Credit Suisse’s research team led by Jonathan Golub, sees earnings decline at 16.9% (see attached):
CS also sees year-over-year revenue growth retreating 3.7% but coming off a much more severe period in the early phases of the public health disaster (see attached):
Now for the good news—at least on a relative basis.
Earnings are surprising to the upside, but at a less substantial level than the prior quarter. About 84% of companies reporting have beaten estimates on earnings per share, which would mark the highest percentage of companies beating estimates since 2008, while 81% are reporting a surprise on revenue.
“We’re seeing net earnings revisions that are surprising to the upside and, with the exception of a few misses along the way, many companies are beating previous forecasts,” wrote Brian Price, head of investment management for Commonwealth Financial Network, in an emailed response to MarketWatch. “The quality of these earnings beats seems especially high in that it’s not just cost cutting but rather stronger revenues that companies are delivering,” he said.
Forward guidance—an even more important metric in the throes of an economically disruptive pandemic—is looking positive as well. With five companies issuing negative outlooks, while 19 companies are forecasting increased earnings per share, or EPS, so far.
All that said, earnings and the prospects for good results down the road won’t exactly ameliorate worries that coronavirus cases are rising in the U.S. and Europe in particular, while economic growth remains wobbly amid the pandemic.