What’s Going On Here?US companies are set to report how much they earned in the third quarter starting this week – and after the year we’ve had, anything could happen. What Does This Mean?Over the last three months, analysts’ estimates of how much companies will earn in a given quarter have increased for the first time in more than two years. But they’re still expecting companies to report third-quarter profits that are 21% lower, on average, than the same time last year. And that would make it the second-biggest earnings drop since the second quarter of 2009.
Companies where demand tends to be stable no matter what – think healthcare, utilities, and consumer staples – and seemingly pandemic-proof tech firms stand to perform best, and even then they’re expected to report profits 1-4% lower than in last year’s third quarter. Energy stocks, meanwhile, are in by far the worst position: they’re expected to report profits 113% lower than this time last year. Why Should I Care?For markets: Don’t expect too much.
84% of US companies reported higher-than-expected second-quarter earnings during the summer, which helped boost their stock prices as investors came to terms with the economic effects of coronavirus. But this time around, their buying and selling will likely be more heavily influenced by the increase in volatility the upcoming US election is expected to cause. And if investors aren’t so focused on companies’ fundamentals, stock price moves after earnings announcements might be less meaningful than usual.
The bigger picture: Ever the optimist.
Based on the difference between current share prices and what analysts think they should be worth, US stocks will rise an estimated 8% over the next year (tweet this). But the industries with the highest potential upside might surprise you: analysts are hoping troubled energy stocks will rise 45%, followed by more modest gains from healthcare, banks, and “communication services” stocks like Alphabet, Facebook, and Netflix. | 
