This week, the S&P 500 companies are expected to announce their Q2 2020 earnings. Things will be slightly different from their usual state considering the current situation.
Big companies in the United States are announcing their Q2 2020 earnings this week. Many of them are expected to be quite encouraging. For example, Citigroup Inc (NYSE: C), JPMorgan Chase & Co (NYSE: JPM), Wells Fargo & Co (NYSE: WFC), and Delta Air Lines Inc (NYSE: DAL) will post their earnings on Wednesday.
The week will end on Friday with BlackRock Inc (NYSE: BLK) and Kansas City Southern (NYSE: KSU).
What Affected Q2 2020 Earnings
Things aren’t so good with the banks at the moment. The American economy is going already in a recession with record levels of unemployment in the middle of the pandemic.
It is showing up in the books as loans and other forms of credit are going toxic. Many people have either lost their jobs or gotten reduced salaries. It has affected many people’s ability to repay loans. Many banks have prepared for this. Provisions for bad loans can cover bad debts to a certain extent. It depends on the financial institution.
The impact of the situation on bank shares, however, has been deep. As long as the economic fall out from the COVID-19 pandemic continues, we can expect deeper cuts in business. It will be evident in the suspension of dividend payments for some companies.
While the situation may not be ideal, this outcome is on the table for many investors.
Banks Are Implementing Strict Measures
For the banks, the Federal Reserve has disallowed share buybacks and dividend hikes for now. 33 of the U.S. largest banks and other financial institutions are to do this. This situation may be reviewed in September when things improve. The directive came after the Fed conducted stress tests on several financial institutions recently.
One thing though that the banking sector has going for it is that the stimulus measures steadied credit ratings to an extent. With household incomes falling, stimulus checks provided relief for many people.
The government stimulus has also provided a basis for recovery once the economy gets back to some form of normalcy. Despite the current economic storm, trading and underwriting are thriving.
It has helped many of the big financial institutions to earn back-end profits at this time. It seems that the situation will be smoother this time than the last recession. Financial institutions have cushions of capital this time. It allows them to absorb the shocks at this time. In general, the banks won’t post great numbers but will still give better-than-expected results.
Many investors’ fingers will remain crossed as the earnings results may hold surprises for many.