One-Third of Investors Pleasantly Surprised by Second-Quarter Earnings

This week’s Sentiment Survey special question asked AAII members to share their thoughts about second-quarter earnings. One out of three respondents (33%) describe earnings as surprisingly positive given the current economic environment. Many of these respondents also note that many companies exceeded their expectations and analysts’ forecasts. In comparison, 18% of respondents say that quarterly earnings were overly optimistic and overpriced. A majority within this group also state that they are concerned that the market is considerably higher than what the current economy is supporting.

About 17% of respondents say that while second-quarter earnings exceeded their expectations, they anticipate third-quarter and full-year results to take a hit. In addition, 15% of respondents say that the positive earnings surprise was likely attributable to low interest rates, high demand and favorable funding. Finally, 14% of respondents say that quarterly earnings were about what they expected and in line with analysts’ forecasts.

Here is a sampling of the responses:

• “They were about in line with expectations given the coronavirus pandemic lockdown in the second quarter but may have been propped up by government payouts. Will be curious about third-quarter earnings when some assistance will expire.”
• “Surprised by positive earnings and the beats to forecasts. Even more surprising is how the market is so much higher than what the economy is currently supporting.”
• “The market has been driven up by stimulus and liquidity that favors large companies. Mom and pop investors have by and large followed the advice of the advisory industry of not abandoning equity during volatility. So, there will not be much outflow of money from the market. Accordingly, there is more money chasing fewer buying opportunities. The market is expensive and will be more so.”
• “Second-quarter earnings reports appeared much better than analysts had previously forecasted. In other words, surprisingly positive considering the events that occurred in the quarter.”
• “Obviously, earnings will be very mixed. Great for companies who were open during the quarter or online enterprises like Zoom and Amazon, but not good for traditional companies like restaurants and brick & mortar retailers.”

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