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3 Reasons Why the Coronavirus Economic Recovery Will Be Quick
There is no question that the Covid-19 pandemic has pushed the U.S. economy into a severe downturn, ending the longest economic expansion in the nation’s history. All indicators suggest that this recession will be unlike any we have experienced in the past, with a sharp downturn in economic activities and employment, followed by a reasonably quick recovery.
There are three reasons why I am confident that the U.S. economy will quickly bounce back.
First, the U.S. economy entered this downturn in a very good shape, with consumer and business confidence and employment levels at or near record levels. The expansion preceding the downturn had been the longest in the nation’s history, but there were visible and obvious imbalances or dislocations that are typically associated with the later stages of economic expansion.
For example, the last two economic recessions followed big bubbles in the housing and Technology sectors. The banking sector that got hit hard in the last recession because of housing exposure remains in excellent shape, with plenty of capital cushion to absorb the cyclical losses that typically incur during downturns (loan-loss reserves).
The Technology sector has emerged as the crown jewel of the U.S. economy, distinguishing the country from all other developed economies. In fact, many of the U.S.- based Technology firms like Alphabet, Amazon, and many others have been critical to keeping all of us engaged and functional in these pandemic-driven shelter-in-place policies.
Second, this is no ‘normal’ recession that arrived as a result of imbalances in the economy or Fed action. External shocks can cause ‘normal’ recessions as well, like the one the western world experienced after the ‘oil shock’ of the early 1970’s or results from wars or other armed conflicts.
The Covid-19 pandemic is an external shock that is unique and without precedent, the last such calamity hit us literally a century ago.
The engineered economic shutdown pushed the economy into a recession, but it was a necessary act to slow the spread of the virus and reset human behavior. With most states at different stages of reopening their economies, we can expect economic activity to steadily start resuming. In this outlook, June will be better than May, with May better than April, which was most likely the downturn’s bottom.
The shelter-in-place pause of the last two months has trained us how to navigate this virus-infested environment as normal economic and human activities resume in the days ahead, even though a cure or vaccine is still some ways off. The ‘pause’ has undoubtedly been painful, but the generous policy response has more than made up for it.
Third, the policy response has been unprecedented, both in terms of size as well as reach. Actions by the U.S. Congress, the Treasury, and the Fed has ensured that short-term liquidity problems don’t become systemic solvency issues that will hobble the economy for a long time.
Congress may need to do more in the coming weeks and months, but the U.S. authorities’ whatever-it-takes attitude has provided the necessary bridge to the other side of this pandemic.
Full normalcy will only resume after we have a vaccine or cure, absent which economic activity in the leisure, hospitality and transportation areas will remain constrained. As such, I am not projecting the U.S. economy and labor market getting back to pre-Covid levels this year. That said, the worst of the Covid-driven economic pain is already behind us, with things steadily improving in the days ahead.
Growth is expected to resume next year, with full-year 2021 earnings for the S&P 500 index currently expected to be up +26.5% relative to the still-declining 2020 estimates. But as strong as next year’s growth estimate is, total index earnings would still haven’t gotten back to pre-Covid levels.
In other words, S&P 500 earnings in 20201 are currently expected to be modestly below the 2019 level.
These numbers translate to an index ‘EPS’ of $155.54 in 2021 vs. $122.93 in 2020 and $160.96 in 2019.
Q1 Earnings Season Scorecard
The Q1 earnings season has effectively come to an end, with results from 490 S&P 500 members already out. Total earnings for these companies are down -13.3% from the same period last year on +1.3% higher revenues, with 66.3% beating EPS and 57.6% beating revenue estimates.
We have another 5 S&P 500 members on deck to report results this week. This week’s docket includes results from chipmaker Broadcom, Gap, Campbell Soup and others.
The comparison charts below put the results from these 490 index members in a historical context. The first set of two charts compare the earnings and revenue growth rates for these companies.
The second set compares the proportion of these companies beating EPS and revenue estimates.
The earnings growth comparisons start looking a lot better when seen on an ex-Finance basis.
For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> Covid-19 & Corporate Earnings
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Alphabet, Amazon, Broadcom, Gap and Campbell Soup are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – June 1, 2020 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) , Broadcom (AVGO - Free Report) , Gap (GPS - Free Report) and Campbell Soup (CPB - Free Report) .
3 Reasons Why the Coronavirus Economic Recovery Will Be Quick
There is no question that the Covid-19 pandemic has pushed the U.S. economy into a severe downturn, ending the longest economic expansion in the nation’s history. All indicators suggest that this recession will be unlike any we have experienced in the past, with a sharp downturn in economic activities and employment, followed by a reasonably quick recovery.
There are three reasons why I am confident that the U.S. economy will quickly bounce back.
First, the U.S. economy entered this downturn in a very good shape, with consumer and business confidence and employment levels at or near record levels. The expansion preceding the downturn had been the longest in the nation’s history, but there were visible and obvious imbalances or dislocations that are typically associated with the later stages of economic expansion.
For example, the last two economic recessions followed big bubbles in the housing and Technology sectors. The banking sector that got hit hard in the last recession because of housing exposure remains in excellent shape, with plenty of capital cushion to absorb the cyclical losses that typically incur during downturns (loan-loss reserves).
The Technology sector has emerged as the crown jewel of the U.S. economy, distinguishing the country from all other developed economies. In fact, many of the U.S.- based Technology firms like Alphabet, Amazon, and many others have been critical to keeping all of us engaged and functional in these pandemic-driven shelter-in-place policies.
Second, this is no ‘normal’ recession that arrived as a result of imbalances in the economy or Fed action. External shocks can cause ‘normal’ recessions as well, like the one the western world experienced after the ‘oil shock’ of the early 1970’s or results from wars or other armed conflicts.
The Covid-19 pandemic is an external shock that is unique and without precedent, the last such calamity hit us literally a century ago.
The engineered economic shutdown pushed the economy into a recession, but it was a necessary act to slow the spread of the virus and reset human behavior. With most states at different stages of reopening their economies, we can expect economic activity to steadily start resuming. In this outlook, June will be better than May, with May better than April, which was most likely the downturn’s bottom.
The shelter-in-place pause of the last two months has trained us how to navigate this virus-infested environment as normal economic and human activities resume in the days ahead, even though a cure or vaccine is still some ways off. The ‘pause’ has undoubtedly been painful, but the generous policy response has more than made up for it.
Third, the policy response has been unprecedented, both in terms of size as well as reach. Actions by the U.S. Congress, the Treasury, and the Fed has ensured that short-term liquidity problems don’t become systemic solvency issues that will hobble the economy for a long time.
Congress may need to do more in the coming weeks and months, but the U.S. authorities’ whatever-it-takes attitude has provided the necessary bridge to the other side of this pandemic.
Full normalcy will only resume after we have a vaccine or cure, absent which economic activity in the leisure, hospitality and transportation areas will remain constrained. As such, I am not projecting the U.S. economy and labor market getting back to pre-Covid levels this year. That said, the worst of the Covid-driven economic pain is already behind us, with things steadily improving in the days ahead.
Growth is expected to resume next year, with full-year 2021 earnings for the S&P 500 index currently expected to be up +26.5% relative to the still-declining 2020 estimates. But as strong as next year’s growth estimate is, total index earnings would still haven’t gotten back to pre-Covid levels.
In other words, S&P 500 earnings in 20201 are currently expected to be modestly below the 2019 level.
These numbers translate to an index ‘EPS’ of $155.54 in 2021 vs. $122.93 in 2020 and $160.96 in 2019.
Q1 Earnings Season Scorecard
The Q1 earnings season has effectively come to an end, with results from 490 S&P 500 members already out. Total earnings for these companies are down -13.3% from the same period last year on +1.3% higher revenues, with 66.3% beating EPS and 57.6% beating revenue estimates.
We have another 5 S&P 500 members on deck to report results this week. This week’s docket includes results from chipmaker Broadcom, Gap, Campbell Soup and others.
The comparison charts below put the results from these 490 index members in a historical context. The first set of two charts compare the earnings and revenue growth rates for these companies.
The second set compares the proportion of these companies beating EPS and revenue estimates.
The earnings growth comparisons start looking a lot better when seen on an ex-Finance basis.
For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> Covid-19 & Corporate Earnings
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.