Skip to main content

A Wall Street sign is seen outside New York Stock Exchange (NYSE).

SHANNON STAPLETON/Reuters

While good business news has been in short supply, investors may take slight comfort in coming weeks from U.S. corporate earnings that are likely to be bad, but not as bad as they have been.

Analysts expect third-quarter S&P 500 earnings to have fallen 21 per cent compared with the year-ago quarter, a big improvement from second-quarter’s 30.6-per-cent drop that was most likely the low point for earnings this year because of coronavirus-fuelled lockdowns, according to IBES data from Refinitiv.

Earnings reporting will get rolling next week with results from some of the big U.S. banks, likely affected by near-record low interest rates and the pandemic-induced recession. JPMorgan & Co. and Citigroup both release results on Tuesday.

Story continues below advertisement

Over all, S&P 500 quarterly results tend to beat analysts' cautious expectations, and they could do that even more than usual this reporting season, strategists said. In a break from the typical trend, guidance from U.S. companies has been more positive than negative and estimates have been improving in recent weeks to reflect more upbeat guidance.

Whether that will be enough to support stocks in the weeks ahead is up for debate.

“Very rarely in the last 10 years have we seen earnings estimates moving higher after a quarterly reporting season,” said Art Hogan, chief market strategist at National Securities in New York.

“That’s a very good sign. It’s a sign there’s a strong possibility this quarterly earnings season is now going to be better than expected,” he said. “The only problem is, now that we’ve entered the fourth quarter, a lot of the economic indicators are plateauing.”

That could weigh on fourth-quarter guidance and overshadow some of the better-than-expected results, he said.

Data this past Thursday on U.S. jobless claims were among the latest to underscore the view the labour market recovery was struggling to gain momentum, with coronavirus cases continuing to rise.

Earnings season comes as the United States also prepares for the Nov. 3 presidential vote, which lands in the middle of one of the heaviest weeks of profit reporting. That, along with focus on prospects for additional fiscal stimulus from Washington, could overshadow earnings news.

Story continues below advertisement

Companies that have reported so far on the quarter have not seen much cheer from investors, despite their much stronger-than-expected results, some strategists have said.

“Firms that reported Q3 already have declined 1% on average despite the big beats, suggesting the bar is much higher for investors,” UBS strategist Keith Parker wrote in a note.

U.S. stocks registered sharp gains for the third quarter, but they fell in September in the first monthly decline since March, when the novel coronavirus began its rapid spread across the U.S.

Among the sectors, earnings from the S&P 500 energy sector are expected to have declined the most, with a projected 115-per-cent year-over-year drop, based on Refinitiv’s data.

The consumer discretionary sector, which includes some of the companies most heavily affected by coronavirus lockdowns such as those in retail, travel and tourism, is slated to post a 34-per-cent year-over-year decline in earnings, Refinitiv’s data showed.

But analysts expect earnings from the S&P 500′s heavyweight sector, technology, to decline just 0.5 per cent from a year ago in the third quarter, the smallest decline among all sectors.

Story continues below advertisement

“Admittedly, things are better than they were at the end of June,” wrote Tobias Levkovich, Citi’s chief U.S. equity strategist.

But with many uncertainties surrounding the pandemic, treatments, the U.S. election and the economy, “forward guidance will be crucial, and we suspect C-suites may stay guarded,” he said.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies