How bad will earnings be? Nobody really knows
With that in mind, earnings for the first quarter — and the remainder of 2020 — are likely to be bleak.
According to estimates from FactSet, earnings for S&P 500 companies are expected to fall 10% in the first quarter compared to a year ago. That would be the worst performance since a more than 15% decline in the third quarter of 2009.
And analysts are forecasting a stunning 20% year-over-year drop in the second quarter.
The hope is that the pace of the profit declines will let up in the second half of the year. But analysts are still predicting earnings will be down 8.5% in the third quarter and about 1% in the fourth quarter.
As awful as all this sounds, some think that near-term profit targets should be reduced further. If the United States (and the rest of the world, for that matter) winds up being in a recession that lasts for more than just a few quarters, then Wall Street’s forecasts may very well turn out to be way too rosy.
After all, analysts are flying blind now that so many companies have withdrawn their outlooks for the rest of the year.
“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 a year ago.
And there is precedent for things to get that bad. During the Great Recession, earnings plunged 29% in the third quarter of 2008 (when Lehman Brothers went bankrupt) and then plummeted 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.
The good news? After another steep drop in the third quarter, profits more than doubled in the fourth quarter of 2009 as the downturn came to an end.
Banks kick off first quarter earnings season
Most of the coming week’s big earnings are in the financial sector.
And investors will also get a glimpse of how the market madness of the first quarter is hurting providers of top exchange-traded funds.
Monday: Major exchanges in Europe as well as the Hong Kong Stock Exchange are closed for Easter Monday
Thursday: BlackRock earnings; US weekly initial unemployment claims and housing starts report for March