The trend of massive negative revisions of Q1 2020 seems to have eased somewhat since June 1, 2020, due to wide scale reopening of the US economy. The US SPX 500 or the S&P 500 has gained considerably, after its massive losses in Q1. As of June 21, the average expected earnings growth for the S&P 500 stands at 4% for 2020, for the ninth straight week.
However, Salesforce’s downward guidance for Q3 and the remaining part of 2020 is a big worry for investors. The EPS for S&P 500 for Q2 2020 is expected to decline 42%. Three sectors that are expected to lose majorly in Q2, on a YoY basis, are energy, automobile and transportation. Consumer discretionary, conglomerates and aerospace will see huge declines as well.
Despite a rebound in the markets, on account of further fiscal stimulus packages by the US government and resumption of business activity, the pandemic’s full-scale effect continues to impact the markets. As of June 19, the S&P 500’s full year earnings growth for 2020 stood at -24.1%. Overall profitability of the index might not return to pre-COVID levels in 2021. The US labour market is showing signs of improvement and retail sales are increasing. If the number of coronavirus cases does not surge in a second wave, economic recovery could be expected in Q3 2020.
Economic Data to Watch Out for in Q3 2020
July 1, 2020: FOMC Minutes | July 29, 2020 / September 16, 2020: Interest Rate Decision by US Fed
The US Federal Reserve has maintained that it will keep its federal funds rate in 0-0.25% range through to at least 2022. If it decides to take the benchmark interest rate to the negative zone, the equity markets may surge, with a rise in investor activity.
July 2, 2020/ August 7, 2020/ September 4, 2020: US Non-Farm Payrolls Report
The job market had positive news for May 2020, with 2.5 million unexpected job additions. A drastic recovery in the labour market is not expected till Q4 2020, but only in the absence a second wave of the pandemic. The unemployment rate is expected to stay at 16% for Q3.
July 14, 2020/ August 12, 2020/ September 11, 2020: US Inflation Rate YoY
The annual inflation rate declined to 0.1% in May, from 0.3% in April. The rate is expected at 0.5% for Q2. Analysts maintain that the stats do not accurately represent the price of essential goods purchased by the average person, which is continuously climbing. More Dollar printing measures might lead to a jump in inflation in Q3.
July 30, 2020/ August 27, 2020/ September 30, 2020: US GDP Growth QoQ for Q2 2020
US GDP declined 4.8% in Q1, and the after-effects of the lockdown will push the Q2 GDP down by more than 20%, according to forecasts. Declining GDP growth will put pressure on the US Dollar, making equities seem worthwhile to investors.
Q3 2020 Predictions: Political Events That Could Impact the US SPX 500
The 2020 presidential elections will continue to take centre stage in the months ahead. A Republican victory could be good for the markets.
Q3 2020 Predictions: Other Factors That Could Impact the US SPX 500
The world is waiting for the miraculous COVID-19 vaccine. There are many contenders in the race. News of positive trials will induce optimism in the markets. At the same time, rising cases in several US states could be a cause for major volatility.