- With 90% of second quarter earnings reported, results were much better than feared.
- So much better in fact, that second quarter earnings per share beat analyst estimates by 17%, representing the biggest beat since 2000, according to Bank of America.
- The earnings beat was primarily driven by healthcare and large cap tech names like Facebook, Apple, Amazon, and Alphabet.
- And according to BofA, the better-than-expected earnings results could continue in the third quarter as recent dollar weakness should flip to a tailwind for company profits.
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As second quarter earnings results continue to roll in, company sales and profits are much better than feared by Wall Street analysts.
With 90% of companies having already reported earnings for the quarter, cumulative earnings per share beat analyst estimates by 17%, representing the biggest beat on record since 2000, according to a Monday note published by Bank of America.
Cumulative earnings per share stood at $27.30 for the quarter so far, representing a decline of 34% year-over-year. The results are 9% above BofA's forecast.
Additionally, 59% of companies who've reported so far this quarter beat both profit and sales estimates, representing an all-time high, BofA said. That 59% figure tracks well above the two-decade average of 39%, according to the bank.
Clearly, analyst estimates amid a global pandemic that resulted in rolling economic shutdowns across the country were too dire.
The earnings beats have been driven by healthcare and large cap technology names like Facebook, Apple, Amazon, and Alphabet. Energy and financial sectors were the only two sectors that didn't see earnings beats this quarter.
According to the bank, FAANG earnings beat by roughly 50%, and were responsible for 25% of the overall S&P beat.
That 25% figure also closely aligns with FAANG's market cap concentration in the S&P 500. According to Chris Verrone, head of technical and macro strategy at Strategas Research Partners, the top five largest
So, what's next for earnings in the third quarter? While earnings guidance has been mostly weak, if provided at all, expect continued strength in earnings relative to analyst estimates, in part driven by a weaker dollar and a rebound in manufacturing data.
"Recent dollar weakness (-4% since start of quarter and -3% y/y) suggests some upside risk for 3Q estimates," BofA said, adding that every 10% decline represents a 3-4% earnings-per-share benefit.
A weak dollar is beneficial for multinational companies based in the US because it means American products are cheaper outside of the country, making them more competitive with other products based on price.