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Sneak Peek: US Earnings Season Kicks Off

Posted by Fullerton Markets on April 14, 2020 at 10:15 PM


With 88 negative earnings pre-announcements being issued by S&P 500 corporation according to Refinitiv, we expect investors to attempt to re-assess 2020 revenue and EPS prospects. Do expect huge volatility in US stock futures.

  • This will be the most uncertain earnings season on record since the coronavirus pandemic has disrupted the global economy.
  • The number of coronavirus cases in the US has risen to 587,173 cases at the time of writing, more than the combined cases in Spain, Italy and Germany, which are behind the US in terms of the number of cases.
  • However, given how the US stock futures have been moving, we are reluctant to call for a short yet.
  • This can be seen during the announcement of US jobless claims which soared to a historic high while US stock index futures continue to climb.
  • We will now dive into three sectors and see how they could be affected.

Banks

Given the superbly low global interest rates and a flattening yield curve, the demand for loans from corporations will definitely be lower. Meanwhile, there will be higher provisions for credit losses. Regional banks have particularly large exposure to restaurants, energy and other small businesses.

Asset management will also be hit as a lower demand for financial services and lower markets mean lower fees.

Energy

The energy sector will likely suffer from the biggest hit as the output cuts by Saudi and Russia will not be enough to offset a near-complete collapse in global oil demand. The demand is unlikely to be spurred by the low prices, with demand faltering due to lockdowns in nearly every country.

We believe that more of these energy companies will likely cut or eliminate dividends while smaller companies might be filing for Chapter 11 (bankruptcy).

Consumer Discretionary

Travel and leisure will experience the worst hit as the lockdowns have prevented anyone from flying or travelling. Combined with the high fixed costs, layoffs are almost certain which will push unemployment rate even further.

These are just a few sectors that we have broken down on what to expect. The next question will be – what to expect from the US stock futures?

Looking at the S&P 500 and given the bullish momentum, we believe that the price could continue to head higher towards 2892 first, before moving lower.


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Fullerton Markets Research Team

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