Earnings Revisions Set for Big Improvement

Jonathan Kaczka

Jonathan Kaczka, CFA

Vice President, Asset Allocation Analyst

The second quarter of 2020 saw the sharpest intra-quarter downward revision to earnings since 2009 (-17.5%). This is set to be followed by one of the largest upward revisions over the period, as we enter the third quarter earnings season with analysts recalibrating earnings estimates to rebound faster than expected.

Does this mean anything for forward returns? Although there is a modest negative relationship, the coefficient is statistically insignificant and the last time we saw earnings upgrades at this pace, the S&P 500 rose 3.2% and 5.0% respectively in the following quarter. Still, this is a metric worth following, as it indicates that the medium-term macro outlook continues to improve.

The earnings upgrade/downgrade intra-quarter coefficient points to an improving medium-term outlook
chart with orange lines showing earnings upgrade/downgrade intra-quarter coefficient points to an improving medium-term outlook

Source: Bloomberg, Voya Investment Management

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