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Positively surprising results for 3Q 

In the United States, two-thirds of companies from the S&P 500 have already reported their 3Q results. Wall Street analysts expected 3Q to be even more difficult for many companies, but this has not been confirmed and expectations have been positively exceeded in many cases. Although the US economy was hit by a second wave of the pandemic during the summer months and the unemployment rate was close to two digits number, a business activity supported the economy, which grew by more than 30% in 3Q, which was reflected in the results.

 

Exceeded expectations

The results for 3Q are still relatively positively surprising and, as we may have become accustomed to, markets always seem to include different aspects in their development which may seem irrational at first glance. However, the coronavirus pandemic is again the number one major issue, and the record increase in positive cases that precede lockdowns in Europe is a much bigger catalyst. However, we must not forget that the decline in sales was evident in most companies, but the declines were in most cases much smaller than previously expected.

 

Total earnings per share (EPS), which reported US blue chips from the S&P 500 index, performed approximately 20% better than analysts had expected. However, they are still 10% lower than last year. Sales, which, unlike EPS, are not affected by share repurchases, ended 2.8% above expectations. Compared to 2019, this is a 2% decrease. It is based on FactSet data, which compares results from companies that have reported their results so far. Specifically, this is 63% of companies from the S&P 500 index. Better results were also reported by the banking sector or the consumer goods sector.

 

Chart: Difference between results and analysts' expectations (Source: FT.com

 

Coronavirus and election are in the center of attention again

Facebook, Amazon, or Apple also arrived with better results. This is another quarter that exceeded relatively negative analyst expectations. All the more disappointing was the reaction of the markets, which have been under selling pressure since the end of October. Nervousness from the US presidential election and fears of insufficient fiscal aid have so far outweighed better results. The number of coronavirus infections in the United States exceeded 100,000 in one day last week, and growth rates remain close to record-high numbers. This could be a problem especially in the case of the election of Joe Biden, who is leading the polls and his attitude to the pandemic is not nearly as relaxed as in the case of current President Donald Trump.

 

However, the better results of American companies are generally very good news, as most companies are able to generate profits even in such a difficult time which means that stock markets should not be significantly constrained in the long run. This Friday, we will hear data from the US market for the last month, and expectations are that the unemployment rate will remain above 7%, which is still the highest in the last 7 years. That is why great emphasis is placed on the fiscal stimulus that would help the unemployed and smaller businesses. Its enforcement should be faster in the case of Biden's victory, and the stimulus itself should be even greater.
 

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