We are off to a good start in Q3 earnings season, with the banks and brokers coming out with a notably improved profitability picture relative to what they were able to show in the first half of the year.

The market appears unwilling to credit these players for their good Q3 showing, but positive results from the perennially out-of-favor banks nevertheless reconfirms the earnings recovery theme that we have been consistently highlighting over the last three months.

The best evidence of this recovery has been the steady improvement in the revisions trend since early July, which helped push estimates for Q3 and beyond higher. We are starting to see the same trend in play for Q4 estimates, as the chart below shows:

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We will be looking for this improving revisions trend to gain pace in this next week as we enter the heart of the Q3 earnings season, with more than 300 companies on deck to come out with quarterly results, including 86 S&P 500 members. With results from 49 index members already out, we will have seen Q3 results from 27% of the index’s total membership by the end of this week.

This week’s reporting docket expands beyond the Finance sector that has dominated the results thus far, with bellwethers from Netflix (NFLX - Free Report) and Tesla (TSLA - Free Report) to Procter & Gamble (PG - Free Report), Coca Cola (KO - Free Report), Intel (INTC - Free Report) and a host of others in between. Results from this representative cross-section of the economy will give us a good sense of the earnings landscape.

Q3 Earnings Season Scorecard (as of Friday, October 16th)

We now have Q3 results from 49 S&P 500 members or 9.8% of the index’s total membership. Please note that these 49 index members account for 12.6% of the index’s total market capitalization. Total earnings (or aggregate net income) for these 49 companies are down 17.8% from the same period last year on 2.4% lower revenues, with 85.7% beating EPS estimates and 77.6% beating revenue estimates.

The two sets of comparison charts below put the Q3 results from these 49 index members in a historical context, which should give us a sense of how the Q3 earnings season is tracking at this stage relative to other recent periods.

The first set of comparison charts compare the earnings and revenue growth rates for these 49 index members:

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The second set of charts compare the proportion of these 49 index members beating EPS and revenue estimates:

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As you can see above, not only is the pace of declines decelerating, but also a much bigger proportion of companies are beating EPS and revenue estimates.

For the Finance sector, we now have Q3 results from 35.8% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Finance companies are down 8.2% from the same period last year on 0.8% higher revenues, with 87.5% beating EPS estimates and 77.6% beating revenue estimates.

Q3 Expectations as a Whole

Looking at Q3 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings for the quarter are now expected to be down 18.9% from the same period last year on 2.4% lower revenues. The decline rate has started coming down as companies have come out with better-than-expected results.

The table below shows a summary picture for Q3, contrasted with what was actually achieved in 2020 Q2:

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The chart below takes a big-picture view of the quarters, showing Q3 earnings (green bars) and revenue (orange bars) growth in the context of what was actually achieved in the last few quarters and what is expected in the coming periods.

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The chart below shows quarterly earnings totals or quarterly aggregate net income, instead of year-over-year growth rates. This gives us a better appreciation of the pandemic’s earnings impact:

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The chart below presents the big-picture view on an annual basis. As you can see below, 2020 earnings and revenues are expected to be down 19.9% and 4.6%, respectively:

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The above annual growth picture approximates to an index ‘EPS’ of $128.11 for 2020, down from $159.95 in 2019 and $159.29 in 2021.