Review the latest Weekly Headings by CIO Larry Adam.
Key Takeaways
- Hopes policymaker action will ‘expedite’ the recovery
- Investors view earnings beats as a ‘special delivery’
- Not all states successful in ‘handling’ COVID-19
Sunday is the 245th anniversary of the United States Postal Service system. While the motto “neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds’’ has been accurate, add COVID-19 as another challenge that the Postal Service has overcome. Since the virus outbreak began, mail carriers have worked tirelessly to accommodate the ~60% surge in packages as consumers shifted to online shopping while still being able to deliver our mail. They could also find themselves squarely involved in the upcoming election with the likelihood of an increase in mail-in ballots. Similar to mail carriers, our outlook is formulated with a critical look at the ‘route’ ahead to determine what may ‘expedite’ or ‘delay’ our expectations. Deliveries next week include the busiest week of earnings, a Fed meeting, prospects of a fiscal cliff, key economic data, and tentative Congressional hearings. Below is a ‘first class’ view of what to anticipate.
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Investors Sorting Through Earnings Results | Next week will be the busiest week of the 2Q20 earnings season, with ~195 S&P 500 companies representing nearly half of the index’s market capitalization set to report results. Only 29% of the market capitalization has reported thus far, but 77% of the companies have beaten earnings per share estimates which is above the previous 20-quarter average of 72%. Due to the prolonged shutdowns, the bar for earnings had been lowered, with estimates for the quarter revised down 48% over the past six months. Therefore, investors have treated companies beating their bottom line estimates as a ‘special delivery,’ with those companies outperforming the broader index by 95 basis points in the day following their announcements. On the other hand, companies that missed earnings expectations have underperformed by ~45 basis points over this same time period. With the economic recovery likely to remain uneven at the company and sector level, better than expected earnings growth and clear, positive forward guidance will be rewarded.
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Not All States Earn A Stamp Of Approval | While a substantial number of states are experiencing an uptick in cases, it is only ~8 states that are simultaneously experiencing a rise in the positivity rate, meaning that the rise in cases is not a mere reflection of more testing capabilities. Some hospitals within these states (e.g., FL, ID, LA) have reached full capacity, causing health officials and political leaders to reestablish restrictions and implement mask mandates. If the surge in certain states cannot be contained, statewide lockdowns may become a reality and the speed and magnitude at which the economy will recover will be impacted.

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