A Brutal Earnings Season May Not Drive Stocks Lower
Fiona Cincotta April 10, 2020 3:41 PM
Earning will be bad - but will it matter?
The Q1 earning season kicks off on 14th April and isn’t going to be pretty. Until now the impact of covid-19 on corporate top and bottom lines has been largely theoretical. This week that changes. Companies, straying with banks and health firms will reveal how the early weeks of the coronavirus shut down impacted their revenues, profits, workforce and customers and potentially how it has altered their outlook.
Q1 is just part of the evidence of the pain that coronavirus outbreak is inflicting. Forward guidance would be the other half of the equation. However, many companies are expected to withdraw guidance for the full year given that visibility is extremely limited. No-one knows how or when the coronavirus crisis will end. This makes any form of forecasting extremely challenging.
This week was a good week for US stocks the S&P rallied 12% in just 4 days, the index has now gained 27% from its low struck on 23rd March, putting it technically in a bull market. The market rallied on growing optimism that the coronavirus peak was nearing and on unprecedented central bank stimulus and government stimulus. The latest being a $2.3 trillion programme from the Fed to help small and medium sized businesses.
Sign of things to come?
The market has been able to look through the horrifying figures on the assumption that once that once the lock down measures are eased in the US and across the globe, economic data will rebound. Fort his reason the central focus has not been economic data, but coronavirus statistics. The sooner the peak is reached, the sooner the number of deaths and infections ease, the sooner the lock down ends. A quick return to normality means a sharp rebound. The longer to lock down continues, the higher the chance of a more deeply entrenched downturn.
With this in mind there is a good chance that the markets will adopt a similar approach with earnings, particularly given the lack of forward guidance. Q1 numbers will be bad, but the focus is likely to remain on coronavirus statistics and the chances of a rebound later in the year.
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