The new abnormal

Apr 27, 2020 | Jay Zhang


COVID-19 has left economies and companies operating in a state of business as unusual. So, when it comes to the outlook for corporate profits, it’s time to throw out the playbook.


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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