This corporate earnings season and the next are oddities. This is not because of the double-digit retrenchments that we expect in earnings growth—that’s normal during recessions. A key reason we think the Q1 and Q2 reporting seasons will be outliers is because many management teams are having a very difficult time gauging the future amid COVID-19 uncertainties.
Given the abundance of unknowns about the contours of economic recessions and subsequent recoveries in North America, Europe, and globally, there is a meaningful lack of visibility about corporate profits, especially in economicallysensitive industries and those hit hardest by COVID-19 shutdowns.
As a result, we think investors should take 2020 and 2021 earnings forecasts with a grain of salt, and should use a range of stimates when attempting to gauge the future outlook for profits and equity market valuations.
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