By John Tierney 06-05-2020

Earnings Expectations In The COVID Crisis

(3 min read)
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The coronavirus crisis may seem to have dragged on for an age, but the reality is that the initial shock hit markets and most economies less than 2½ months ago. Since then we’ve witnessed massive volatility in the equity market. The equally weighted S&P 500 fell 39% from its 15 February high to a March low, and then recovered 26.7% by 20 April, for an all-in decline of 22.9%.

A recently released paper by HEC’s Augustin Landier and MIT’s David Thesmar, looks at analysts’ downward revised earnings forecasts during this period, and it considers to what extent these changes were a factor in the massive equity market volatility during this period.

It finds that 10% of the S&P 500’s all-in decline is attributable to lower earnings outlooks, and the rest to investors demanding higher risk premia or discount rates.

Analysts Have Been Cautious But Rational About Revising Earnings

The study analyses annual earnings forecasts for the period 2020-24 for about 1,000 companies. At the beginning of the study period, earnings per share (EPS) was projected to grow about 13.5% annually. By April, EPS growth for 2020 was -4%, then gradually recover to 5% in 2021, 10% in 2023, and 11% in 2024. Analysts, in other words, are projecting only a gradual recovery in earnings and growth rates over several years – hardly a V-shaped recovery.


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