Dow Jones, Nasdaq 100, S&P 500 Price Outlook:
- The Dow Jones, Nasdaq 100 and S&P 500 will look to earnings season for stock-specific insight
- Forecasts from single stocks can offer a deeper look at the economy when taken in aggregate
- The containment procedures put in place to combat coronavirus will create an unusual earnings season regardless
Dow Jones, Nasdaq 100, S&P 500 Forecast: An Earnings Season like none Other
The Dow Jones, Nasdaq 100 and S&P 500 have recovered significantly from their March 19 lows as central banks and governments across the globe have acted to ward off a global recession in the wake of coronavirus. Despite remarkable central bank and government intervention, recent data has revealed a staggering increase in unemployment and growth forecasts appear similarly bleak.
Until now, market participants have been largely reliant on broader economic metrics or forecasts which has made it difficult to ascertain the ramifications single stocks may be experiencing. Thankfully, the arrival of earnings season will look to inject information into the market – arguably the essence of investing. That being said, this earnings season is poised to be entirely unique and as a result, may be a stock-pickers dream.
What to Expect When Your Forecasts are Obsolete
Since almost all of the upcoming quarterly benchmarks were issued prior to the novel coronavirus outbreak, most finance teams will be frantically revising and projecting for the coming quarters which may see prior estimates completely discarded. As a result, expectations for this season will range wildly. While most analysts agree on a dramatic decline in earnings per share, rather unsurprisingly, disagreement arises on the pace and degree of economic recovery.
To that end, investment funds and asset management companies have offered a vast array of predictions with a coming recession of anywhere from a couple months to a few years. Therefore, the insights offered from single companies which are likely privy to more detailed data – at least in their industry – should provide unique viewpoints that will help flesh out the larger picture when taken in aggregate.
While the broader expectations are quite concerning, not all companies may suffer from the outbreak. Already, Micron revised its quarterly profit outlook after recording an increase in datacenter demand due to the quarantine transition. In turn, the stock has outperformed the broader tech-heavy Nasdaq 100 since the report, and it could hint the sector as a whole is positioned to strongly.
Micron Price Performance Since March 25 Earnings Alongside QQQ ETF
Chart created in TradingView
While Micron and the semiconductor sector will be one important area to watch, there is little to suggest they may be the sole outperformers. Already, market pundits have heralded the quarantine-facing business models of companies like Netflix which should theoretically thrive in a time when venturing outdoors for leisure is forbidden. Should these companies confirm the market’s suspicions, post-earnings price gains may be expected.
Anecdotally, my abrupt and absolute transition to a home office sparked a buying spree of office supplies and necessities which has surely been echoed elsewhere. Thus, can we assume companies like Microsoft and CDW will see a temporary boost in sales and subsequent earnings beat? Nothing is certain and earnings beats may be few and far between, but the resultant landscape looks to be a stock-pickers dream while also providing clarity to the macroeconomic analyst looking to forecast the direction of an entire index.
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Finally, the coronavirus-stricken economy could be a saving grace for some corporate finance teams that will use the pandemic as an opportunity to wipe their quarterly forecasts clean and begin anew whether the issues at hand are virus related or not. Either way, this earnings season will be truly unique, and all the unknowns should result in heightened volatility and intriguing trading conditions. As the season progresses, be sure to follow @PeterHanksFX on Twitter for updates and analysis and check back at DailyFX for insight.
–Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX