By David Bailin
Chief Investment Officer
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We explore facts, extrapolations, opinions, and consequences around the pandemic – and their meaning for investors
On an April 20th podcast, Marc Lipsitch, Professor of Epidemiology at Harvard, noted that in his field there are (a) facts, (b) informed extrapolations from comparable events (pandemics) and (c) opinions/speculation. We think the same is true for markets and economic forecasting.
So, let’s begin with our earnings forecasts and actual earnings for Q1 2020. As you can see below, we expect a major reduction in earnings in 2020, followed by a partial recovery in 2021. On the right you can see the initial report of Q1 earnings. With about 22% of companies reporting, we see flat YoY revenues and earnings down 22%, more than 9% below estimates. As we wrote in The COVID Tug-of War, market leadership has depended on a handful of mostly technology shares. The most sensitive of those leaders to current conditions are Google and Facebook who are dependent on digital advertising revenues for growth and profitability. After Netflix reported blowout number last week following a strong rally, its share price slid modestly. This means that expectations for it and other leaders are quite high.
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