Based on over 90% of earnings reports from S&P 500 companies Q2 operating earnings are estimated at $17.63 per share. That follows $11.88 per share of earnings in Q1, bringing the 12-month total to $99 per share. That represents the lowest level of reported earnings since 2016.
It will be difficult for S&P companies to post reported operating earnings of $99 per share for all of 2020. That’s because S&P companies need to earn more than $70 per share in the second half of the year or nearly $2 per share more than they did in the second half of 2019 when business conditions were more normal.
Investors so far have ignored and overlooked the earnings collapse of the first half of 2020, sending equity prices back to levels that preceded the pandemic. In doing so, equity investors have lifted the price/earnings ratio’s to a level that exceeds the record highs of the tech-equity bubble.
Investors seem to be betting on a lot of potential positive outcomes and ignoring for now negative ones. Current macro valuations offer a very poor risk-reward ratio and anemic returns even under the most optimistic assumptions.