S&P 500 Earnings May See First Double-Digit Drop in Decade

  • Analysts say S&P 500 earnings growth will fall 10% in Q2 2020
  • Airlines and oil, gas & consumable fuels see biggest cuts in earnings estimates

As global companies face a new week of closures due to the coronavirus pandemic, the focus will shift to corporate earnings once this quarter ends on Wednesday. Many companies, including Twitter (TWTR) and Target (TGT) have already pulled their forecasts due to business uncertainty, and predictions for a massive drop in earnings are everywhere.

Earnings Estimates Will Show Initial Impact of COVID-19

Forecasts, on average call for a 10% decline in 1Q’2020 earnings.

The S&P 500 will report a 10% year-over-year decline in earnings for Q2 2020, according to analysts polled by FactSet. If earnings growth does see a double-digit drop, it would be the first time since Q3 2009 (-15.7%). The estimated earnings decline for Q1 2020 is -5.2% and Q3 2020 is -1.1% with earnings growth to return in Q4 2020 (4.5%).

Earnings estimates for Q2 2020 have plunged over the last month as the COVID-19 outbreak escalated and companies withdrew guidance. Growth was pegged at 3.9% on March 1. Since then, estimated dollar-level earnings have decreased by $49.6 billion to $319.6 billion from $369.2 billion. Two industries, Oil, Gas, & Consumable Fuels and Airlines, account for $22.6 billion or 46% of this cut to estimates.

Source: FactSet.

Sectors expected to see the biggest decreases in earnings are Energy (-92.6%), Consumer Discretionary (-31.6%), Industrials (-26.8%), Financials (-9.5%), and Materials (-7.4%).

Source: FactSet.

The question for investors is whether these estimated have already been “priced in“, given the steep sell-off in equity markets in the last 5 weeks. U.S. markets fell 34% from record highs set in mid-February, but have recovered close to 20% since then.

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