ENJOY THE RIDE – Q2 Earnings Season is Here



We are about to enter into the most controversial earnings season ever. We will witness the full impact of COVID-19 lockdowns into the US companies next week of July 13th, 2020.

Who did manage to adapt quickly to change? How much money was burned? And most important, What will they do next?


Our current hypothesis is that there will be a set of few sectors and companies that thrived or kept their businesses during this period. The Type A sectors (Technology, Software, Health Care, and Consumer Goods) might see benefits or be less affected. While Type B sectors- (Real Estate, Retail, Energy, Industrial, Banks, Airlines, Cruises, Hotels, Restaurants, etc.) might show massive impacts.

Surprisingly, these potential nightmare results we might hear do not mean their prices may adjust down or up as soon as they report results. It all comes down to expectations.

We all know Type B companies were affected greatly last quarter. The big question is by how much. If they were affected less than what investors expected, the prices might increase to reflect that, and likewise, if the impact was more extensive.

If we follow the same logic, even Type A company's prices might be adjusted down if their results are not as good as expected.

Without going into valuations details, we might agree both types of companies are richly value, given the circumstances. But the extraordinary liquidity pumped into the market by the Federal Reserve and the Government, and their unconditional future support provides an unconventional incentive to take risk positions.

Therefore, we find ourselves in a "show me the money" mode where slight changes in company assumptions might cause wild fluctuations of prices, as expected. More important, investors will be very focused on what companies tell us about future results and challenges.

This is nothing new to the markets, but the level of uncertainty and volatility we might expect could be surprising to some people. So fasten your seat belts and get ready for the ride!.