Analysts 'flying blind' on corporate earnings forecasts

While Wall Street expects profits will be down for most companies in the S&P 500, the focus is on what management teams have to say about what their prospects for profits look like for the rest of the year.

That might prove difficult. With all the uncertainties about when economies may reopen, many companies have simply pulled their profit and sales forecasts for the year altogether.

Given how big and unprecedented the coronavirus shock to the economy has been, analysts are struggling to guess how bad corporate earnings will get hit.

At Deutsche Bank, Chief Global Strategist Binky Chadha said his usual methods of forecasting earnings based on economic growth or surveys measuring business activity “are essentially broken.”

“It’s incredibly hard during normal times to have an economic forecast, but today, you’re kind of flying blind,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management. “What companies have to say will be incredibly important.”

Across Wall Street, analysts are forecasting a drop of roughly 10 percent in earnings per share for S&P 500 companies for the first quarter and 21 percent for the second quarter.

It’s going to be a tough couple of quarters for corporate America as the economy will likely take “two steps forward and one step back” as it recovers, said Jeff Buchbinder, equity strategist for LPL Financial. “We know this is going to be one of the most severe recessions we have ever seen.”-AP