July 6, 2020 - This week has the potential to be a bit of calm before the storm of earnings season begins next week.
The calendar is pretty light on both earnings reports and economic data this week. Next week though earnings season begins with big banks and a few other bellwether companies.
This will be an interesting earnings season as the second quarter contained both the lowest of the stay-at-home levels of economic activity and quite a bit of economic rebound, before the most-recent rise in coronavirus infections caused some areas to close certain businesses again.
Of course, the usual things investors look for during earnings season are going to be very different this time around.
Those analyst estimates that provide a quick reference for expectations could be really far from actual results. Analysts often use a company's guidance to try to check their models. With hundreds of companies not providing guidance this quarter, it will be interesting to see how based in reality those estimates are. This means that an earnings miss may be treated less harshly by traders than in quarters past.
Growth, either quarter-to-quarter, or year-over-year are also things investors typically look at when evaluating earnings, but we already know a lot of companies were closed altogether or dealing with very difficult conditions during the second quarter, so it seems possible that the market won't punish companies that break a recent growth trend this time around.
This gets us back to forward guidance, which has become the thing investors pay the most attention to during earnings season. Hundreds of companies are already not providing guidance. More could join their ranks, or companies that feel like they have a handle on current conditions could decide to start publishing those forecasts again.
There's lot to that decision though. The management team that provides guidance that is significantly worse than the market is expecting for the rest of the year is potentially setting itself to be blamed for a big drop in the stock. Similarly, not providing guidance when peer companies are providing guidance could look bad to analysts and investors.
As for this week, it is really about the market's confidence and the number of coronavirus cases. So far, the market seems to believe that various stimulus measures will be enough to counteract whatever the effect of the still-rising number of cases is. How long the market can sustain this posture is unknown. The enhanced unemployment benefits that many Americans are receiving are set to expire this month. Those benefits have kept many consumers spending and making rent and mortgage payments. With the coronavirus far from fading away, it doesn't seem like the economy will be back to normal at the end of the month.
Congress is in the very early stages of discussing what another relief package could look like, but failure to pass more programs to get money into the hands of idled workers will definitely hurt the economy. Any sign that the next round will be too small or not targeted correctly could be enough to derail the rally. With four weeks to go in the month, that likely won't happen this week, but we will be keep an eye on chatter from Congress about what the next bill could look like.
Economic Events this WeekTomorrow's ISM number is sure to be eye-popping, but the real action this week is Friday's Employment Situation Report.
- 10:00 a.m. - JOLTS - Job Openings
- 10:30 a.m. - EIA Crude Oil Inventories
- 3:00 p.m. - Consumer Credit
- 8:30 a.m. - Initial Claims
- 10:00 p.m. - Wholesales Inventories
- 8:30 a.m. - PPI