• Investors expect biggest yoy fall in quarterly earnings since Q4 2008
  • All sectors to see decline with Energy, Consumer Discretionary faring the worst
  • Investors looking for guidance, recovery details in commentary
  • Goldman warns that possible Biden win threatens 2021 earnings

U.S. Q2 corporate earnings season kicks off in earnest this week with major banks JPMorgan, Citigroup, and Wells Fargo all set to report tomorrow, followed by Goldman Sachs and Bank of New York on Wednesday. On Thursday, we'll hear from pandemic stars Netflix and Domino's Pizza, along with Bank of America and Morgan Stanley. PepsiCo reported this morning and beat revenue and earnings expectations thanks to our (un)healthy snacking habits during the pandemic.  

Q2 earnings
Source: FactSet.

Wall Street analysts are expecting the S&P 500 to report a -44.6% earnings decline from the same period last year, which would be the sharpest drop since Q4 2008 (-69.1%). It has plunged from a -13.6% forecast at the start of the quarter. The energy sector is expected to fare the worst (-149.9%), followed by Consumer Discretionary (-118.9%), Industrials (-88.8%) and Financials (-55.2%). 

However, with little to guide estimates for the quarter – only 49 companies have issued EPS guidance compared to the 5-year average of 106 – there's a big range for surprises of the good and bad variety. Investors will focus on the strength of balance sheets, guidance of what's to come and the expected speed and shape of the recovery in the earnings calls, especially as second wave fears abound. Bank earnings will be watched closely since many are bracing for more defaults and bankruptcies, and have added capital to their balance sheets, preparing for the worst.

Goldman Sachs predicts earnings will fall by 60% in the quarter. "Energy and Consumer Discretionary are expected to post outright losses in the quarter due to the sharp decline in oil prices and direct impact from coronavirus shutdowns. Financials results will also be weak as banks build additional reserves ahead of an expected surge in bankruptcies and nonperforming loans," wrote analysts in a new report. Goldman also warned that "the odds of a Democratic sweep in November" have increased substantially since February and now stand above 50%. "If enacted, we estimate that the Biden tax plan would reduce our S&P 500 earnings estimate for 2021 by $20 per share, from $170 to $150."

Q2 earnings
Source: Goldman Sachs.