As of Friday, 86% of S&P 500 companies have reported earnings results for the first quarter with an average year-over-year decline of 14%. The quarter is on track to mark the largest decline since the third quarter of 2009 when corporate profits fell 16% from the year before. If these estimates are correct, then S&P 500 earnings for 2020 will be approximately $135 per share, which means that the index trades at 22x this year’s expected results. This price level may imply that investors are optimistic that the likely recession caused by the COVID-19 virus may be short-lived. Chart 3 below shows the significant dispersion in earnings growth during the first quarter as healthcare and beneficiaries of the stay-at-home orders grew earnings (staples, tech, communication) while more cyclical sectors saw steep declines.
Chart 3: Q1 Earnings Growth by Sector
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