US Reporting Season: what to expect from this quarter’s results

The US Reporting Season for Q2 kicks off this week, and will extend to around the middle of August.

The market data that matters (S&P500):

Forecast EPS Growth (YoY)

Forecast Revenue Growth (YoY)

Forward Price-to-Earnings

Current Dividend Yield

-44.9%

-11.9%

22.30

1.9%

Source: Bloomberg, Bloomberg Intelligence

What is the market expecting out of this earnings season?

This US reporting season is perhaps the most significant in over a decade. After the outbreak of the Covid-19 in the US in February, this quarter’s results will encompass the heaviest impacts of the economic lockdowns and recession, and takes place at a time where the US economy remains in the midst of a worsening of the health crisis. Market participants are resigned to the fact earnings this quarter will be poor. But the hope remains that the deepest economic and financial impacts of the crisis have passed, with the earnings and macroeconomic outlook to trough and improve from here.

What are the key themes to watch out of the earnings season?

What will be the impact of Covid-19 on company profits?

It’s expected to be a reasonbly dismal reporting period for S&P500 companies. Consensus estimates suggest that earnings growth across the index ought to contract by approximately 44%, as the full impact of the Covid-19 health crisis and economic lockdowns begin to manifest in corporate profits. The biggest hit to earnings is expected to be sustained by cyclical sectors within the S&P500. Earnings growth is tipped to contract by almost -90% across the industrial sector; while the financial sector is tipped to record an earnings contraction of around -50%.

What shape will the recovery take?

The core concern in this reporting season is how the Covid-19 health crisis and subsequent recession has impacted corporate profits. Though the results for Q2 will be significant, especially if companies undershoot expectations on aggregate, the most important detail for market participants within that will be the earnings guidance. Analysts estimate Q2 will be the trough in earnings growth, with the outlook for earnings expected to improve gradually in the coming quarters. Market participants will be scrutinizing company results for what shape the earnings and economic recovery in the US may take, especially given the new risks of “second-peak” in Covid-19 infections.

Can the earnings justify the market’s rich valuations?

Secondary to earnings and the earnings outlook itself, a significant theme this US reporting period will be whether company fundamentals justify the high prices and rich valuations across the US stock market. The S&P500’s forward price-to-earnings ration, though somewhat off recent peaks, remains elevated at multi-decade highs. Although this dynamic can be explained away as a chase for yield, supported by central bank largesse, price action, and volatility for the S&P500 this reporting season will be driven by the matter of whether company fundamentals can begin to reflect lofty stock prices.

How could this earnings season impact the financial markets?

The S&P500 has been at the centre of the financial universe in recent months, as market sentiment has improved, and market participants position for a recovery in the global economy. It’s been a binary environment for markets lately, with the S&P500 leading the risk-off/risk-on dynamic that’s underpinned recent price-action. Lately in global markets, and especially the S&P500, has broadly remained rangebound, and seemingly in a pattern of consolidation. Technical indicators point to a market poised to break-out to the upside in the short-to-medium term. But this outcome relies heavily on US corporates delivering an upbeat message about future growth conditions and earnings.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Explore the markets with our free course

Discover the range of markets you can trade on - and learn how they work - with IG Academy's online course.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.