Earnings are beating expectations, but fundamentals remain weak
So far, second quarter earnings have beaten estimates" FactSet senior earnings analyst John Butters notes.
The big picture: With 9% of S&P 500 companies reporting so far, 73% have reported a positive EPS surprise and 78% have reported a positive revenue surprise.
But, but but: Earnings are still on pace to decline 44% in Q2, which would mark the largest year-over-year decline for the index since Q4 2008 (-69.1%).
Below the surface: The estimated net profit margin for the S&P 500 for the first quarter is 7.1% — the lowest net profit margin reported by the index since Q4 2009 and well below the 5-year average of 10.6%, according to FactSet.
State of play: All eleven S&P 500 sectors are reporting, or are projected to report, a year-over-year decline in net profit margins in the second quarter.
- Analysts expect net profit margins to improve gradually over the next three quarters, however, they are not projecting year-over-year improvement until Q1 2021.
Editor’s note: This piece has been updated to clarify information attributed to John Butters.