Weekly Market Comment October 15 2020

The Markets

Markets were sharply focused on the status of American stimulus packages last week. First, it was on. Then, it was off. Then, it might be on. Then, it was off again. There was a big bill. There was a smaller bill. There were stand-alone options.

‘Maybe’ was enough for investors
Major stock indices finished last week higher, per Barron’s, and global indices were bullish on Friday because of U.S. stimulus talks, reported Financial Times.

“ Markets are dizzy from all the talk on both sides about what they want from a deal but believe that something will inevitably happen anyway… Markets are essentially drunk on massive [U.S.] government spending just as they are inebriated from all the Fed quantitative easing and zero-interest rate policy,” said an advisory group chief investment officer cited by Financial Times.

Earnings season is upon us
Another factor that influences investors is earnings season, which begins this week. During earnings season, companies communicate how profitable they were during the previous quarter.

Third-quarter earnings estimates for companies in the S&P 500 index remain subdued. John Butters of FactSet reported, “For Q3 2020, the estimated earnings decline for the S& P 500 is -20.5 percent”. While that is a significant decline, it is an improvement on -25.3 percent, which was the June 2020 estimate for third quarter earnings. It is also an improvement on second quarter’s -31.9 percent.

By comparison, earnings estimates for companies in the S&P/TSX Composite index are expected to decrease by 18.7% compared to the same time last year, even though 100% of companies reported earnings and revenue above analyst expectations.

Some companies haven’t provided guidance
It’s notable one of four companies in the S&P 500 did not provide earnings per share (EPS) guidance for 2020 or 2021. (Guidance is a forward-looking statement that tells investors what the company expects will happen in the near future.) “Almost all of these companies cited the uncertainty of the future economic impacts of COVID-19 as the reason for not providing or withdrawing EPS guidance for the full year,” reported FactSet.

Certainty about earnings may improve when a treatment or vaccine for the virus becomes available. The Milken Institute reported there are 318 treatments for COVID-19 and 213 vaccines in the works. Thirty-five of the vaccines are in clinical trials.

Source: Refinitiv

Weekly Focus – Think About It

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