5 Takeaways From A Surprisingly Strong Earnings Season

While second-quarter earnings for S&P 500 companies are down 33% year-over-year, 82% of companies reporting have exceeded analyst expectations, the highest percentage in FactSet’s tracking history.

Q2 Takeaways: LPL Research analyst Jeffrey Buchbinder recently discussed the blowout second-quarter earnings season and highlighted a handful of takeaways for investors: 

  • Earnings losses are highly concentrated. The consumer discretionary, energy, financial and industrial sectors alone have accounted for 100% of the year-over-year S&P 500 earnings declines. 
  • Growth stocks have outperformed during the pandemic. Earnings among Russell 1000 Growth Index stocks are up 4% compared to a year ago, while earnings among Russell 1000 Value Index stocks are down 40%.
  • Guidance has been surprisingly good. Since the end of the second quarter, the average analyst forward earnings estimate for the S&P 500 is 1.4% higher. 
  • Economic data is finally trending in the right direction. The Citi Economic Surprise Index and a similar metric calculated by Bloomberg are near multi-decade highs, suggesting recent economic data has been much better than expectations.
  • A weak dollar is good news. The U.S. Dollar Index has dropped 5% since the end of the second quarter, which should be a tailwind for U.S. companies that generate international revenues.

With earnings season winding down, Buchbinder said attention will likely shift to the upcoming presidential election. For now, LPL has a year-end S&P 500 target of 3,300, roughly 2.9% below its current level.

“While 3,300 on the S&P 500 may look pessimistic at this point for a year-end S&P 500 fair-value target, we do not want to send a signal to investors to be more aggressive with equities in portfolios at this time,” he said.

Benzinga’s Take: Things may be looking better for the economy than they did back in late March, but there is still a lot of uncertainty out there for the S&P 500 to be trading at all-time highs. With the SPDR S&P 500 ETF Trust SPY ETF already up 52.1% from March lows, near-term risk may be skewed to the downside.

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