With almost 90% of S&P 500 companies having reported earnings for the second quarter, US corporate profits have declined by around 35% year on year. While the plunge in profits is stark, the bar for earnings expectations had fallen considerably as countries effectively shut down their economies in Q2 and so this quarter’s numbers have beaten consensus expectations for a 45% decline in profits. The S&P 500’s heavy weight to technology and other more defensive sectors has resulted in earnings being more resilient so far than the decline in US GDP might have indicated. Looking forward to the rest of the year, consensus expectations are pointing to a decent rebound in earnings. Given the recent experience of some countries that have seen economic re-openings coincide with new outbreaks of Covid-19 cases, such a bounceback may be difficult to achieve if the virus continues to drag on activity.

US earnings have jumped a very low hurdle

% change year on year, S&P 500 EPS consensus expectations