Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
The COVID-19 outbreak has had an immense impact on the global financial world as well as various stock markets. As markets reopen amid lockdown removals, businesses are attempting to stay afloat and regain some of the lost momenta. According to a July 31, 2020 report, some investors are concerned about the recent market returns.
Q2 Earnings Reports Exceed Expectations
Many companies around the world are publishing their earnings over the last financial quarter. Before this time, expert predictions have been very pessimistic, given the current economic situation. However, businesses appear to be beating these predictions.
Over 300 companies listed on the S&P 500 have released their Q2 earnings, and 85% have exceeded previous earning predictions. On average, they are exceeding these expectations by 22%. This represents a significantly better performance than thought possible and could be a good sign moving forward.
It is also an improvement in the first quarter of the year. In Q1, 70% of such companies were already beating analysts’ expectations but by 3% on average. It is also an improvement on last year, where 75% of such companies beat analysts’ expectations by only 5%.
Overall, the market has seen a mixed reaction in the last few weeks. The Dow Jones fell by 42 points while the S&P 500 rose by 55 points. Similarly, popular stocks like Microsoft and Netflix have declined while others such as Apple have risen.
Investor Anxiety Remains
While the markets appear to be fairly healthy for a pandemic period, certain new developments are making investors anxious. One of these is the results from companies such as Boeing (BA), Raytheon Technologies (RTX), and General Electric (GE), which seem to indicate that the aerospace sector has not fared too well. All three stocks saw a decline of 12%, 9%, and 9% respectively.
While the value of these stocks might be down, it could represent an opportunity for investors. They will be selling at a price that is lower than usual, and thus, investors could purchase them in the anticipation that they’ll eventually recover.
This strategy could coincide with investors who choose to implement a longer-term strategy when it comes to stocks. Such a strategy differs from what seems to be driving current stock market trends. This activity seems to stem from active day traders, particularly the millennial population who prefer easy to use stock trading apps.
On top of this, the airline industry is not likely to fully return to its past fortunes until air travel itself recovers. That is unlikely to return to normal, unless a vaccine for the COVID-19 virus emerges.
However, scientists estimate that it will take 12-18 months for that to happen. Similar trends can be seen in the auto industry, as travel restrictions are still being upheld around the world.
While investors might be apprehensive about the current state of things, not everyone feels that they should be. According to Brian Rauscher, head of global portfolio strategy and asset allocation at Fundstrat, the current earnings are actually good.
He feels that some investors are too focused on the current wave of the virus. As such, they are not paying enough attention to the market corrections that are taking place.
Individual company issues aside, he feels that the market is in a good place, even though there is more work to be done. However, he expects that this good fortune will ensure over the next quarter.
This clash of opinion and new data from various companies can leave investors confused. Some might argue that now is the time to bulk up one’s stock portfolio in anticipation of future market growth. Others might choose to play it safe and hold on to their existing stock.
Do you think this market rally will continue? Can the aerospace and auto industries recover? Let us know your thoughts below.