Quantifying the earnings impact of COVID-19
Talley Léger. Investment Strategist
We assume a baseline of $154 or 0.5% year-over-year for first quarter 2020 S&P 500 trailing 12-month operating earnings per share (EPS).
From our lens, it appears the cost of the virus-related shutdown has been $3 of EPS each week ($154/52), assuming all S&P 500 companies were idle. If half of those firms were idle ($24/2), an 8-week shutdown may have cost $12 of EPS ($154-$142).
As such, we believe a broad market earnings recession began in the first 3 months of this year with a 7% decline from year-ago levels, which will likely be followed by much deeper declines in later quarters. Clearly, the shutdown becomes more costly with each passing week.
While stocks have enjoyed a liquidity-fueled rally off the March low, we think investors should prepare themselves for the possibility of additional market volatility in what promises to be a grim earnings season.
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