While stocks made some big moves on Thursday, to finish a solid week of gains going into the holiday weekend after the Federal Reserve provided additional details on how it will bolster the economy amid the coronavirus pandemic, markets have since slipped some as analysts are predicting a massive 20% year-over-year drop in the second quarter, and the coronavirus drags on.
A number of companies are reporting earnings this week, according to the earnings calendar, and many of the most key releases are from the financial sector.
Giant banks like JPMorgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC) and Citigroup(C) will report their latest results. All of these behemoths are anticipated to reflect sizable drops in earnings per share in contrast with a year ago. The Financial Select Sector SPDR Fund (XLF) is down almost 4% today before these bank earnings are released.
Demand has up-ticked recently for banks since the stimulus package, with banks scrambling to serve a plethora of borrowers looking to take advantage of small business loans and consumer loans in light of the COVID-19 outbreak.
Estimates have also been battered for oil giants Exxon Mobil (XOM) and Chevron (CVX), automakers GM (GM) and Ford (F) and aerospace leader Boeing (BA), FactSet said. These major transportation companies are suffering as consumers remained under quarantine in the majority of states in the U.S. and many countries around the world.
There is optimism that the rapid drop in profit declines will be mitigated in the second half of the year, but analysts are still anticipating that earnings will be down 8.5% in the third quarter and about 1% in the fourth quarter.
“Companies are scrambling to suspend guidance,” said Erik Knutzen, chief investment officer for multi-asset class portfolios at Neuberger Berman. “Nobody really knows what’s next. This is uncharted territory.”
Knutzen argues that earnings for all of 2020 could wind up plunging between 25% and 30% from 2019 numbers.
While this may seem extreme, during the Great Recession, earnings plunged 29% in the third quarter of 2008 (as Lehman Brothers went bankrupt) and then tanked an additional 69% in the fourth quarter of that year. Earnings then fell 35% in the first quarter of 2009 and 27% in the second quarter of that year.
One bright spot: The SEC told corporations that this earnings season is not typical and has encouraged companies to provide forward-looking guidance, and not worry about rapidly changing information, which may make executives more willing to discuss what is happening without trepidation that the SEC will punish them if forecasts vary later.
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