We will let the following five charts tell how the aggregate corporate earnings story has unfolded in the wake of the Covid-19 pandemic.

As we all know, the pandemic and the associated shelter-in-place policies brought the U.S. economy to a standstill in April and May, with something resembling ‘normal’ activities only now getting underway in large parts of the country.

Recent economic and labor market readings for April and May show the pandemic’s horrendous effects on the economy. But the hope is that since entered the pandemic in fairly good shape, we will get back to stronger economic growth in the coming months.

The Q2 earnings season, which will (unofficially) get underway with results from the big banks in mid-July will be showing the pandemic’s full earnings impact, with the picture starting to improve as we move into Q3 and beyond.

On an annual basis, earnings expectations for this year (2020) have taken a big hit as a result of the pandemic, but the growth picture is expected to markedly improve as we look ahead to 2021 and beyond.

These expectations are captured in current consensus estimates, which we show below in the 5 charts. 

The first chart shows how S&P 500 earnings estimates for full-year 2020 have evolved since early January. As you can see below, the expectation was for a roughly +8% growth at the start of the year, which has now become a decline of -24.1% decline.

The second chart shows how S&P 500 estimates have evolved for the current period (2020 Q2), which is expected to be the downturn’s bottom.

The third chart takes a big-picture view of S&P 500 quarterly expectations, with earnings and revenue growth expectations for the next four quarters contrasted with actuals for the preceding four periods; expectations for 2020 Q2 have been highlighted.

The fourth chart provides a big-picture view on an annual basis.

As you can see above, growth is expected to resume next year, with full-year 2021 earnings for the S&P 500 index currently expected to be up +26.8% relative to the still-declining 2020 estimates. But as strong as next year’s growth estimate is, total index earnings would still not have gotten back to pre-Covid levels.

In other words, S&P 500 earnings in 2020-1 are currently expected to be modestly below the 2019 level, as the fifth chart below shows.

These numbers translate to an index ‘EPS’ of $155.16 in 2021 vs. $122.32 in 2020 and $161.17 in 2019.

Q2 Earnings Season Gets Underway

We mentioned earlier, the Q2 reporting cycle will (unofficially) get underway with the JPMorgan (JPM) report on July 14th. But from our perspective, the Q2 earnings season has gotten underway already, with the Adobe (ADBE) report on Thursday, June 11, as the third earnings release that we will count as part of the overall Q2 tally; the first two being Costco (COST) and AutoZone (AZO). All three of the companies reported results for their fiscal quarters ending in May, which we count as part of official June-quarter tally.

Oracle (ORCL), Lennar (LEN) and CarMax (KMX) are other S&P 500 members that are on deck to report fiscal May quarter results this week that will get counted as part of the Q2 tally.

The results from these 3 index members don’t tell us much about the aggregate earnings picture for the quarter that we showed in the earlier charts.

The summary table below shows Q2 expectations in the context of what we saw in the preceding period.

As you can see above, 15 of the 16 Zacks sectors are expected to have lower earnings relative to the year-earlier period, with three of the 16 sectors expected to lose money in Q2 (decline rates in excess of -100%).These three sectors are unsurprisingly Energy (Q2 earnings expected to decline -137.8%), Transportation (-152.4%) and Autos (-229.6%).

Finance and Technology, the two biggest earnings contributors to the S&P 500 index, are expected to show Q2 earnings declines of -38.6% and -13.5%. In fact, Tech’s -13.5% decline is the smallest earnings decline of the 15 sectors that will experience declines in Q2 (Utilities is the only sector that is expected to show a modest growth).