Earnings Season Shocker: FAAMG Earnings Grew By 2% While EPS For The Other 495 S&P Companies Plunged 38%

Goldman, which over the weekend turned incrementally more bullish on the economy and hiked its GDP forecast as it now expects that a COVID vaccine will be discovered and widely distributed in Q1 2021, resulting in what Goldman believes will be a sharp jump in consumption in the first half of next year (whether that actually happens in a country where more than half refuse to get vaccinated is a different story completely), has done a post-mortem on Q2 earnings season and also found some more "good news."

First, after expecting a 60% plunge in EPS in Q2, Goldman's David Kostin was delighted to report that S&P 500 EPS declined by "only" 34% year/year, well above both consensus expectations for a -45% decline, and Goldman's own forecast of a nearly double drop.

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Some more details on soon to be concluded Q2 earnings season: with 445 companies representing 88% of S&P 500 market cap having reported, 58% of firms beat consensus EPS expectations by more than a standard deviation of estimates. This beat rate is well above the long-term average of 47% and nearly matches the previous record high from the 2009 post-Financial Crisis. However, as even Kostin concedes, this only happened because consensus bottom-up earnings estimates were drastically cut ahead of 2Q earnings season. As a result of low expectations, companies that beat EPS estimates have only outperformed the market by 36 bp on average during the day following reports, below the historical average of 110 bp.

Aggressive estimate cuts aside, Goldman notes that strict cost management helped S&P 500 margins decline by less than expected, read lower input costs as well as aggressive layoffs.

Company managements across a variety of industries highlighted this theme in their earnings transcripts, ranging from employment and wages (e.g. DAL, KSU, HST) to discretionary expenditures (e.g., ALLE, GM). Both COGS and SG&A expenses as a share of revenues came in below consensus expectations, contributing to positive margin surprises in the quarter.

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