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Investment strategy
October 8, 2020
3 mins

Earnings matter, but this earnings season may be outshined

October 8, 2020
3 mins
Joe Fiorica
Investment Strategist
Steven Wieting
Chief Investment Strategist and Chief Economist
Autumnal trees in Central park
SUMMARY

We believe the third quarter marked the beginning of a profits recovery.


We continue to recommend a tactical rotation into more economically-sensitive sectors and regions as we look towards 2021.

Q3 earnings season unofficially begins on October 13 with a few of the big US banks, while the bulk of reporting is due over the course of the next 4 weeks.

While we expect year-over-year profits growth will be deeply negative, especially for more COVID-impacted sectors, we believe Q3 marked the beginning of a profits recovery as economies emerged from lockdowns and learned to live with the realities of pandemic restrictions. US profits should continue to recover further into next year, ultimately returning to pre-COVID levels in the first half of 2022.

We continue to recommend a tactical rotation into more economically-sensitive sectors and regions as we look towards 2021. With that said, we expect that catalysts for any medium-term rotation will coincide with key events like the announcement of an effective vaccine or the reduction of political risks, not necessarily from any surprises emerging from this earnings season. 

Core portfolios should remain diversified, retaining exposure to firms with solid earnings fundamentals. We continue to expect long-run outperformance in areas like digitization, health care innovation, and clean energy, while allocations to dividend growers can provide exposure to high-quality income generating equities.

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