US Companies In ‘Much Better Shape’ Than Wall Street Thinks: Here’s Why


US Companies In 'Much Better Shape' Than Wall Street Thinks: Here's Why

The second-quarter earnings season is right around the corner, and investors are bracing for some extremely bad numbers. David Trainer, CEO of New Constructs, said Tuesday that U.S. companies are in much better shape as a whole than Wall Street seems to realize.

Trainer said much of the market’s move off the March lows has to do with investors looking beyond the second-quarter numbers at longer-term normalized earnings, which aren’t particularly bad. One of the biggest challenges companies will face this earnings season may simply be communicating the massive near-term write-offs and losses due to the COVID-19 outbreak and giving investors some clarity on their longer-term outlook.

“Wall Street is expecting double-digit declines in Q2 earnings amid the coronavirus-driven recession, but we believe companies are in much better shape than many analysts think,” Trainer said.

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More Upside Ahead?

Trainer is encouraging investors to ignore the second-quarter noise and focus on core earnings. New Constructs core earnings estimates suggest the SPDR S&P 500 ETF Trust SPY 0.27% was extremely oversold during the March bottom, and the S&P 500 remains reasonably valued even after its recent surge.

“We think there is even more upside ahead as more investors realize earnings aren’t as bad as estimates suggest,” he said.

Analysts expect second-quarter S&P 500 earnings will be down 43.8% from a year ago, the largest year-over-year decline since the fourth quarter of 2008.

Our Take

Most long-term investors understand that second-quarter numbers will be mostly noise. However, guidance will be key in providing investors some indication of what the new normal will be in the post-outbreak economy.

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