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Will the Pandemic Finally Put an End to Quarterly Public Company Guidance?
Could COVID kill quarterly guidance? And other musings ahead of the worst expected earnings season in 11.5 years
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This article was originally published by TipRanks.
What can be said about Q2 2020 earnings expectations that hasn’t been said already? According to Factset we should be prepared to see S&P 500 profits decline by 43.8% year-over-year (YoY). It's probably not even worth mentioning what that expectation was pre-COVID, but I will anyways… 4.4% on December 31. Q2 earnings season is on tap to be the worst since Q4 2008, and depending on whose data you use that quarter reported -69.1% (FactSet), -52.4% (S&P Global Market Intelligence), or -65.2% (Refinitiv (Thomson Reuters)). It’s all bad, and we’re frighteningly close to those all-time lows, a lot of negative surprises could make that a reality.Could estimates be more accurate due to the lack of corporate guidance??
To my last point, you might be thinking, “But we never see a lot of negative surprises! Companies always beat!” And that’s true, on average over the last 10 years ~70% of S&P 500 companies have beaten quarterly earnings expectations. John Butters at FactSet says the 5 year average is even higher at 73%, and companies beat by an average of 5 percentage points. Because of this, throughout my career covering earnings I’ve gotten into the habit of looking at the consensus estimate for profit growth at the beginning of the season and bumping it up by 5 percentage points. For example, the -43.8% then would become -38.8%. This consensus expectation is based on sell side estimates, which are in turn based on corporate guidance. But what happens when there is no corporate guidance for Wall Street to go off of? Around half of S&P 500 companies have withdrawn previous Q2 guidance or simply never issued it in Q1 reports as they typically do. We know the sell side leans heavily on corporate guidance, never straying too far from those numbers in order to keep the lines of corporate access open. We also know companies issue conservative guidance so they beat expectations and see a pop in their stock price on reporting day. My prediction is that the lack of short-term guidance from corporations will lead to more genuine analyst estimates for the Q2 2020 season. I’m hesitant to say this will mean more accurate estimates, as the climate is still pretty uncertain…. but with that said, analysts had one quarter to analyze quarterly results with a COVID backdrop and should be pretty clear on the implications this summer with the absence of an official treatment or vaccine. Because of that I do think the final consensus for the S&P 500 will have an earnings surprise much lower than the historical 4.9%, with a beat rate well below the historical average of ~70%.. I’d guess somewhere in the low 60s would be fair, inching closer to that 50% mark which statistically is what we should see.Will COVID finally put an end to quarterly corporate guidance? (We are hoping yes!)
Predictions about how COVID will change things permanently have been flying around for months, an acceleration of trends that had already begun… more remote work, at home fitness etc. Maybe this will kick off a new era of companies only providing longer-term guidance which many in the industry have been calling for consistently over the years. In February 2016, BlackRock CEO Larry Fink, famously wrote a letter to the CEOs of S&P 500, asking them to curb activities that encourage short-termism, chief among them was the issuance of quarterly EPS guidance. His plea was a focus on long-term growth frameworks. “To be clear, we do believe companies should still report quarterly results — “long-termism” should not be a substitute for transparency — but CEOs should be more focused in these reports on demonstrating progress against their strategic plans than a one-penny deviation from their EPS targets or analyst consensus estimates.” Jaime Dimon and Warren Buffet then revived that conversation in 2018 in a Wall Street Journal column, urging public companies to discontinue the practice of providing quarterly earnings for the same reasons Fink did two years earlier -- this ritual forces companies to focus on managing a number in the short-term, rather than focusing on creating long-term value for shareholders. And research has shown that guidance is more or less useless and a time suck to boot. A McKinsey paper in 2006 concluded that providing quarterly guidance does not impact valuations or returns, but it does require a copious amount of time from senior management to prepare reports. It seems like a good time for companies to start doing away with this practice now that most have waded in, intentionally or not.When every sector is a laggard
Here’s the part where I would usually break down the leading/lagging sectors. But there are actually no “leaders” this quarter in terms of profit growth, with only a few sectors showing slight revenue growth. Allow me to explain.Laggards
Energy This one is a doozy, with profits for the sector expected to fall -148.3% (all sector estimates from FactSet) YoY. Energy is also the biggest revenue laggard with the top-line anticipated to drop 42.2%. Slower demand for oil due to COVID and the resulting oil price war between Russia and Saudia Arabia have suppressed the sector, with no signs of a summer comeback that would match a typical year. With that said, oil prices logged their best quarterly performance since the Gulf War in Q2, yet are still down 30%+ for the year. Consumer Discretionary Another obvious one here as consumers are not consuming as much as they would have this time of year. Even as retail and restaurants try to open back up, increasing coronavirus infections have softened some of those plans. Consumer Discretionary is right on the heels of the Energy sector, with profits anticipated to be down 119% for Q2. There are of course names in the space doing well at this time.. AMZN, HD, PTON are just a few of the names we like. Industrials The Airlines and Aerospace sub-sectors are dragging this one down, with Boeing, Southwest Airlines and Delta weighing most heavily. All 5 airlines in the S&P 500 (United, Alaska, Southwest, Delta, American) have seen their price targets dropped in the last 3 months, with United Airlines seeing the biggest drop of 44% over that time. Two weeks ago Delta warned thousands of its pilots about a potential furlough on the horizon as revenues for 2020 are anticipated to only reach 25% of what they were last summer, others are expected to follow suit. With that said, price targets for some of these names have started to make a slow comeback in the last couple of weeks. One name to highlight is LUV, as it showed up on our “Top Recommended Stocks” screener this week. SouthWest has seen it’s consensus price target from the top analysts decrease by 7% in the last quarter, but potential upside over the next 12-months still stands at 40%.
“Leaders” - but not really
Utilities Like mentioned, there are no leaders this season, so let’s just call these “less bad laggards.” Utilities leads that list with an expected profit decline of -0.4%. Despite earning this very special accolade, don’t expect investors to retreat to defensive names. In fact, the aggregated 12-Mo PT from Wall Street has fallen 4% (see chart below) for S&P 500 Utilities constituents, the second most of any sector behind Real Estate at -7%. Health Care Health Care has gotten a lot of attention since March, as pharma and biotech names both big and small work on COVID therapies and vaccines. Health Care profits are expected to decline 14% YoY, yet revenues are anticipated to be up slightly at 0.5%. The sector has seen the second largest increase in Price Targets, and the second highest number of ratings upgrades in the last quarter (see chart below). Information Technology Big tech has been a strong point throughout the volatility this year, with names like AMZN, AAPL, MSFT, FB all closing at all time highs last month. YoY earnings for the sector are still expected to be down 9.5%, with revenues down 1.2%. This sector has seen Price Targets increase an average of 3%, the most of any sector.Nearly 20% of S&P 500 companies have been downgraded
The chart below shows the average Price Target increase/decrease by sector since April 13 (the beginning of the last earnings season), as well as the number up ratings upgrades and downgrades by sector.
But that’s not all….
Geopolitical tensions will also be competing for investor attention this season, as US/China relations are continually more strained, the US threatens additional import duties on Europe, and OPEC continues its quest to lower crude production. Also, the end of the government stimulus program will come just as Q2 earnings season hits its stride, and at a time when US workers may be losing their jobs for a second time since March as states that maybe opened up more quickly start to scale back to curb increasing coronavirus infections.Saddle up
Despite gearing up for what’s anticipated to be the worst earnings season since the great recession, there is some comfort in knowing that these terrible estimates are already priced in, and that Q2 is expected to be the trough/things should get better from here. These days it’s hard to know if huge misses this season could truly shock the markets, they haven’t necessarily been reacting to the earnings reports, but as always we’re prepared for an ‘anything can happen’ season. The post Could COVID kill quarterly guidance? And other musings ahead of the worst expected earnings season in 11.5 years appeared first on TipRanks Financial Blog.International
This is the biggest money mistake you’re making during travel
A retail expert talks of some common money mistakes travelers make on their trips.
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Travel is expensive. Despite the explosion of travel demand in the two years since the world opened up from the pandemic, survey after survey shows that financial reasons are the biggest factor keeping some from taking their desired trips.
Airfare, accommodation as well as food and entertainment during the trip have all outpaced inflation over the last four years.
Related: This is why we're still spending an insane amount of money on travel
But while there are multiple tricks and “travel hacks” for finding cheaper plane tickets and accommodation, the biggest financial mistake that leads to blown travel budgets is much smaller and more insidious.
This is what you should (and shouldn’t) spend your money on while abroad
“When it comes to traveling, it's hard to resist buying items so you can have a piece of that memory at home,” Kristen Gall, a retail expert who heads the financial planning section at points-back platform Rakuten, told Travel + Leisure in an interview. “However, it's important to remember that you don't need every souvenir that catches your eye.”
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According to Gall, souvenirs not only have a tendency to add up in price but also weight which can in turn require one to pay for extra weight or even another suitcase at the airport — over the last two months, airlines like Delta (DAL) , American Airlines (AAL) and JetBlue Airways (JBLU) have all followed each other in increasing baggage prices to in some cases as much as $60 for a first bag and $100 for a second one.
While such extras may not seem like a lot compared to the thousands one might have spent on the hotel and ticket, they all have what is sometimes known as a “coffee” or “takeout effect” in which small expenses can lead one to overspend by a large amount.
‘Save up for one special thing rather than a bunch of trinkets…’
“When traveling abroad, I recommend only purchasing items that you can't get back at home, or that are small enough to not impact your luggage weight,” Gall said. “If you’re set on bringing home a souvenir, save up for one special thing, rather than wasting your money on a bunch of trinkets you may not think twice about once you return home.”
Along with the immediate costs, there is also the risk of purchasing things that go to waste when returning home from an international vacation. Alcohol is subject to airlines’ liquid rules while certain types of foods, particularly meat and other animal products, can be confiscated by customs.
While one incident of losing an expensive bottle of liquor or cheese brought back from a country like France will often make travelers forever careful, those who travel internationally less frequently will often be unaware of specific rules and be forced to part with something they spent money on at the airport.
“It's important to keep in mind that you're going to have to travel back with everything you purchased,” Gall continued. “[…] Be careful when buying food or wine, as it may not make it through customs. Foods like chocolate are typically fine, but items like meat and produce are likely prohibited to come back into the country.
Related: Veteran fund manager picks favorite stocks for 2024
stocks pandemic franceSpread & Containment
As the pandemic turns four, here’s what we need to do for a healthier future
On the fourth anniversary of the pandemic, a public health researcher offers four principles for a healthier future.
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Anniversaries are usually festive occasions, marked by celebration and joy. But there’ll be no popping of corks for this one.
March 11 2024 marks four years since the World Health Organization (WHO) declared COVID-19 a pandemic.
Although no longer officially a public health emergency of international concern, the pandemic is still with us, and the virus is still causing serious harm.
Here are three priorities – three Cs – for a healthier future.
Clear guidance
Over the past four years, one of the biggest challenges people faced when trying to follow COVID rules was understanding them.
From a behavioural science perspective, one of the major themes of the last four years has been whether guidance was clear enough or whether people were receiving too many different and confusing messages – something colleagues and I called “alert fatigue”.
With colleagues, I conducted an evidence review of communication during COVID and found that the lack of clarity, as well as a lack of trust in those setting rules, were key barriers to adherence to measures like social distancing.
In future, whether it’s another COVID wave, or another virus or public health emergency, clear communication by trustworthy messengers is going to be key.
Combat complacency
As Maria van Kerkove, COVID technical lead for WHO, puts it there is no acceptable level of death from COVID. COVID complacency is setting in as we have moved out of the emergency phase of the pandemic. But is still much work to be done.
First, we still need to understand this virus better. Four years is not a long time to understand the longer-term effects of COVID. For example, evidence on how the virus affects the brain and cognitive functioning is in its infancy.
The extent, severity and possible treatment of long COVID is another priority that must not be forgotten – not least because it is still causing a lot of long-term sickness and absence.
Culture change
During the pandemic’s first few years, there was a question over how many of our new habits, from elbow bumping (remember that?) to remote working, were here to stay.
Turns out old habits die hard – and in most cases that’s not a bad thing – after all handshaking and hugging can be good for our health.
But there is some pandemic behaviour we could have kept, under certain conditions. I’m pretty sure most people don’t wear masks when they have respiratory symptoms, even though some health authorities, such as the NHS, recommend it.
Masks could still be thought of like umbrellas: we keep one handy for when we need it, for example, when visiting vulnerable people, especially during times when there’s a spike in COVID.
If masks hadn’t been so politicised as a symbol of conformity and oppression so early in the pandemic, then we might arguably have seen people in more countries adopting the behaviour in parts of east Asia, where people continue to wear masks or face coverings when they are sick to avoid spreading it to others.
Although the pandemic led to the growth of remote or hybrid working, presenteeism – going to work when sick – is still a major issue.
Encouraging parents to send children to school when they are unwell is unlikely to help public health, or attendance for that matter. For instance, although one child might recover quickly from a given virus, other children who might catch it from them might be ill for days.
Similarly, a culture of presenteeism that pressures workers to come in when ill is likely to backfire later on, helping infectious disease spread in workplaces.
At the most fundamental level, we need to do more to create a culture of equality. Some groups, especially the most economically deprived, fared much worse than others during the pandemic. Health inequalities have widened as a result. With ongoing pandemic impacts, for example, long COVID rates, also disproportionately affecting those from disadvantaged groups, health inequalities are likely to persist without significant action to address them.
Vaccine inequity is still a problem globally. At a national level, in some wealthier countries like the UK, those from more deprived backgrounds are going to be less able to afford private vaccines.
We may be out of the emergency phase of COVID, but the pandemic is not yet over. As we reflect on the past four years, working to provide clearer public health communication, avoiding COVID complacency and reducing health inequalities are all things that can help prepare for any future waves or, indeed, pandemics.
Simon Nicholas Williams has received funding from Senedd Cymru, Public Health Wales and the Wales Covid Evidence Centre for research on COVID-19, and has consulted for the World Health Organization. However, this article reflects the views of the author only, in his academic capacity at Swansea University, and no funding or organizational bodies were involved in the writing or content of this article.
vaccine treatment pandemic covid-19 spread social distancing uk world health organizationGovernment
The Grinch Who Stole Freedom
The Grinch Who Stole Freedom
Authored by Jeffrey A. Tucker via The Epoch Times (emphasis ours),
Before President Joe Biden’s State of the…
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Authored by Jeffrey A. Tucker via The Epoch Times (emphasis ours),
Before President Joe Biden’s State of the Union address, the pundit class was predicting that he would deliver a message of unity and calm, if only to attract undecided voters to his side.
He did the opposite. The speech revealed a loud, cranky, angry, bitter side of the man that people don’t usually see. It seemed like the real Joe Biden I remember from the old days, full of venom, sarcasm, disdain, threats, and extreme partisanship.
The base might have loved it except that he made reference to an “illegal” alien, which is apparently a trigger word for the left. He failed their purity test.
The speech was stunning in its bile and bitterness. It’s beyond belief that he began with a pitch for more funds for the Ukraine war, which has killed 10,000 civilians and some 200,000 troops on both sides. It’s a bloody mess that could have been resolved early on but for U.S. tax funding of the conflict.
Despite the push from the higher ends of conservative commentary, average Republicans have turned hard against this war. The United States is in a fiscal crisis and every manner of domestic crisis, and the U.S. president opens his speech with a pitch to protect the border in Ukraine? It was completely bizarre, and lent some weight to the darkest conspiracies about why the Biden administration cares so much about this issue.
From there, he pivoted to wildly overblown rhetoric about the most hysterically exaggerated event of our times: the legendary Jan. 6 protests on Capitol Hill. Arrests for daring to protest the government on that day are growing.
The media and the Biden administration continue to describe it as the worst crisis since the War of the Roses, or something. It’s all a wild stretch, but it set the tone of the whole speech, complete with unrelenting attacks on former President Donald Trump. He would use the speech not to unite or make a pitch that he is president of the entire country but rather intensify his fundamental attack on everything America is supposed to be.
Hard to isolate the most alarming part, but one aspect really stood out to me. He glared directly at the Supreme Court Justices sitting there and threatened them with political power. He said that they were awful for getting rid of nationwide abortion rights and returning the issue to the states where it belongs, very obviously. But President Biden whipped up his base to exact some kind of retribution against the court.
Looking this up, we have a few historical examples of presidents criticizing the court but none to their faces in a State of the Union address. This comes two weeks after President Biden directly bragged about defying the Supreme Court over the issue of student loan forgiveness. The court said he could not do this on his own, but President Biden did it anyway.
Here we have an issue of civic decorum that you cannot legislate or legally codify. Essentially, under the U.S. system, the president has to agree to defer to the highest court in its rulings even if he doesn’t like them. President Biden is now aggressively defying the court and adding direct threats on top of that. In other words, this president is plunging us straight into lawlessness and dictatorship.
In the background here, you must understand, is the most important free speech case in U.S. history. The Supreme Court on March 18 will hear arguments over an injunction against President Biden’s administrative agencies as issued by the Fifth Circuit. The injunction would forbid government agencies from imposing themselves on media and social media companies to curate content and censor contrary opinions, either directly or indirectly through so-called “switchboarding.”
A ruling for the plaintiffs in the case would force the dismantling of a growing and massive industry that has come to be called the censorship-industrial complex. It involves dozens or even more than 100 government agencies, including quasi-intelligence agencies such as the Cybersecurity and Infrastructure Security Agency (CISA), which was set up only in 2018 but managed information flow, labor force designations, and absentee voting during the COVID-19 response.
A good ruling here will protect free speech or at least intend to. But, of course, the Biden administration could directly defy it. That seems to be where this administration is headed. It’s extremely dangerous.
A ruling for the defense and against the injunction would be a catastrophe. It would invite every government agency to exercise direct control over all media and social media in the country, effectively abolishing the First Amendment.
Close watchers of the court have no clear idea of how this will turn out. But watching President Biden glare at court members at the address, one does wonder. Did they sense the threats he was making against them? Will they stand up for the independence of the judicial branch?
Maybe his intimidation tactics will end up backfiring. After all, does the Supreme Court really think it is wise to license this administration with the power to control all information flows in the United States?
The deeper issue here is a pressing battle that is roiling American life today. It concerns the future and power of the administrative state versus the elected one. The Constitution contains no reference to a fourth branch of government, but that is what has been allowed to form and entrench itself, in complete violation of the Founders’ intentions. Only the Supreme Court can stop it, if they are brave enough to take it on.
If you haven’t figured it out yet, and surely you have, President Biden is nothing but a marionette of deep-state interests. He is there to pretend to be the people’s representative, but everything that he does is about entrenching the fourth branch of government, the permanent bureaucracy that goes on its merry way without any real civilian oversight.
We know this for a fact by virtue of one of his first acts as president, to repeal an executive order by President Trump that would have reclassified some (or many) federal employees as directly under the control of the elected president rather than have independent power. The elites in Washington absolutely panicked about President Trump’s executive order. They plotted to make sure that he didn’t get a second term, and quickly scratched that brilliant act by President Trump from the historical record.
This epic battle is the subtext behind nearly everything taking place in Washington today.
Aside from the vicious moment of directly attacking the Supreme Court, President Biden set himself up as some kind of economic central planner, promising to abolish hidden fees and bags of chips that weren’t full enough, as if he has the power to do this, which he does not. He was up there just muttering gibberish. If he is serious, he believes that the U.S. president has the power to dictate the prices of every candy bar and hotel room in the United States—an absolutely terrifying exercise of power that compares only to Stalin and Mao. And yet there he was promising to do just that.
Aside from demonizing the opposition, wildly exaggerating about Jan. 6, whipping up war frenzy, swearing to end climate change, which will make the “green energy” industry rich, threatening more taxes on business enterprise, promising to cure cancer (again!), and parading as the master of candy bar prices, what else did he do? Well, he took credit for the supposedly growing economy even as a vast number of Americans are deeply suffering from his awful policies.
It’s hard to imagine that this speech could be considered a success. The optics alone made him look like the Grinch who stole freedom, except the Grinch was far more articulate and clever. He’s a mean one, Mr. Biden.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.
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The Grinch Who Stole Freedom
As the pandemic turns four, here’s what we need to do for a healthier future
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