Earnings season is upon us

The third quarter earnings season is now upon us, with hundreds of companies across Canada, the U.S., and Europe expected to announce results over the next month. The period encompasses the months of July through September.

The expectation for the U.S. market, where data is more readily available and widely followed, is for this quarter’s earnings to fall by nearly 20% year over year. In absolute terms, that is quite weak. Moreover, of the companies that historically provide annual guidance, more than half of them continue to withhold guidance for this year and next, due to the lack of clarity on the business outlook.

Yet, things are improving. The decline in earnings expected this quarter is less than the 30% decline seen last quarter. Furthermore, there has been a steady increase in the number of companies now willing to provide an outlook. And for the most part, the guidance has been better than expected with the number of companies issuing positive “pre-announcements” outpacing the number of companies warning of weaker than expected results.

This shouldn’t be too surprising. The economic data has itself improved through the summer and into the fall and has likely helped the operating environment for some businesses. To be clear, it remains far from normal, and we still expect it to take a year, if not longer, for the global economy to attain the levels we saw in 2019. But, we are comforted by the progress that continues, even if it may moderate to some extent as a result of the increasing restrictions that governments are embracing in various parts of the world to stem the spread of the virus and ease the burden on their health care systems.

We are eager to hear from various management teams in the weeks to come when they release their results. Their commentary may help provide some clarity on whether they are growing more comfortable in the sustainability and resiliency of the economy and business climate. We look forward to sharing some of our key takeaways in the not too distant future.

Please click here for the Global Insight Weekly – October 15 covering the following topics:

• Inflation fears may be inflated – Fears in the U.S. around inflation have been more persistent than actual inflation, and that remains the case as U.S. data continues to point to little inflation in the pipeline. But even if inflation materializes, the swelling global stock of negative-yielding debt is again likely to weigh on yields. (pg 1)

• U.S. markets flat as earnings season begins – The initial reaction to earnings season has been muted despite strong beats from the financial and health care companies that have reported thus far. We examine how the expectations backdrop has changed. (pg 3)

• Regional highlights: Canada adds 378,000 jobs in September; European economies face new virus measures; Hong Kong and Singapore to launch a “travel bubble.” (pgs 3-4)

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  “People who wonder if the glass is half empty or full miss the point. The glass is refillable.” ~ Unknown