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The Week Ahead: Baked in bad news, braced for better news

Tom Hudson, Miami Herald on

Published in Business News

It will be a sad but expected earnings season when scores of companies turn in their latest quarterly financial results in the week ahead. The pandemic, economic shutdowns, and collapse in demand between April and June left companies struggling to find business.

Investors expect a sour season in the second quarter. Wall Street analysts made record cuts to earnings estimates -- shaving the median profit forecast for all S&P 500 companies by more than 40 percent. Dozens of companies pulled their financial predictions during the springtime because business was so unpredictable.

Yes, the financial results will be ugly. That bad news is priced into most stocks, even with the rally since the March sell-off. The S&P 500 has been resilient even as the COVID-19 infection count has risen substantially and parts of the U.S. retreat on reopening efforts. Second quarter financial results will add little understanding to the economic damage from the necessary public health steps taken to slow the spread of the virus.

Big banks like Citigroup, JP Morgan Chase and Wells Fargo report on Tuesday. Profits will be down. Investors will exam the results for how much money the banks are socking away to protect against loans going bad. The more they hold back over worries of people not being able to pay back loans, the worse earnings can be.

There are expected to be bright spots during the week, like Netflix and eBay, thanks to people staying home, binge watching and shopping online.

The stock market has rebounded from the panic this spring. And with that, so have expectations of a business bounce-back. Investors want to see evidence of that confidence in the week ahead.

 

About The Writer

Financial journalist Tom Hudson hosts "The Sunshine Economy" on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter @HudsonsView.

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