Can you really say that something is much better than expected, if you are not exactly sure what you expected? The US earnings reporting season will begin on Friday, with first reports from large banks, including the Dow Jones Industrial Average DJIA, + 0.23% JP Morgan Chase & Co. JPM component, + 1.19%
The big cuts in estimates are likely the result of analysts assuming the worst as COVID-19 raged. With companies forced to operate largely in the dark during the pandemic, amid a disjointed response from the US government, they were unable to provide much, if any, guidance for analysts to have confidence in their projections. . “Wall Street expectations are too low for the fourth quarter of 2020, so we should see a lot of paces,” said Nicholas Colas, co-founder of DataTrek Research. “We need them.” As an example of how far analyst estimates have been during the pandemic, first quarter EPS growth ended at negative 12.9%, after starting the quarter at a positive 4.7%; second quarter growth was negative 31.2%, compared to an estimate of negative 11.0% at the beginning of the quarter; while third quarter growth improved to negative 5.6% from an initial estimate of negative 24.5%. UBS’s Parker said he expects “fourth quarter earnings to be great,” with results more than 10% higher than estimates. That could be enough to end the pandemic-induced earnings recession and mark the first quarter of earnings growth since the fourth quarter of 2019. However, there are concerns that the recent surge in new cases as a result of COVID-19, which have led to some renewed lockdown measures, may short-circuit earnings recovery. Read the Coronavirus Update column. Delta Air Lines Inc. DAL, + 4.02% on Thursday reported a broader-than-expected loss in the fourth quarter, with travel demand declining as the quarter progressed as an increase in COVID-19 cases led to calls from health officials not to travel on Thanksgiving. and Christmas holidays. Also on Thursday, Alaska Air Group Inc. ALK, + 6.75% reported a fourth-quarter load factor that was below forecasts, as revenue passengers declined in November and December from a post-pandemic peak. in October. Time will tell if this late-quarter weakness seen by some airlines will carry over to other sectors.