Market Perspective 06/26/2020
Guidance is a term used to describe expected future earnings of public companies ahead of the actual results release date. This pre-announcement is typically classified as either positive or negative and can provide the market with a sense of direction. Companies commonly issue these forward-looking statements throughout the year to provide clarity on the company's status, which can in-turn, limit surprises, and ease price volatility.
Why is this important now? During this second quarter, many companies have opted not to provide forward guidance. This quarter, the number of guidance announcements to date is about half of the typical amount. As you may expect, the reason most cited is uncertainly related to the COVID-19 pandemic. This lack of guidance means there are more “assumptions” being made on where earnings will land, which financial markets dislike, and can ultimately lead to an increase in volatility.
Second-quarter earnings announcements, which will begin early July, are expected to be weak as much of the quarter was encased in a COVID-19-induced economic shutdown. This information is not new to investors and current pricing reflects currently available information. Without good data, we will likely see an increase in price volatility (positive or negative) as the markets attempt to align valuations with performance. In short, we should expect more surprises.
Market Comments
On Wednesday, the U.S. saw one of the highest increases in COVID-19 cases; the surge has led some cities and states to dial back on reopening
There are 10,382 stock ratings on companies in the S&P 500; of these ratings, 52% are buy ratings, 42% are hold ratings and 6% are sell ratings (source: Factset Inc.)
The S&P 500 companies, which are a large portion of the U.S. stock market, generates 39% of all revenues from outside this U.S. (source: Factset Inc.)
This could be an important factor for results this year, especially as differences in COVID-19 cases and economic shutdowns/reopening have varied worldwide
Oil prices have increased to just above $40/barrel, a substantial rise from the lows set late April around $9
The price increase has occurred as OPEC and their allies have agreed to cut production through June
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