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Sector Watch: How Preliminary Earnings Have Evolved in 2020

Companies and Markets

By Michael D. Raines  |  December 9, 2020

When the World Changed

Remember the fear during March and April? The night Tom Hanks and Rita Wilson announced via Twitter that they contracted COVID-19 coincided with President Trump’s Oval Office address to the nation. The NBA suspended its season that evening, too. A year’s worth of news happened in an hour.

The corporate world also changed overnight. Companies had to shift operations to remote work and those that couldn’t were soon forced to shutter. April is the start of the Q1 earnings season. CEOs and CFOs had to re-adjustrapidly. Our data found that April marked the spike in preliminary earnings announcements from firms around the world.

Figure 1

Source: Wall Street Horizon (as of November 30, 2020)

Companies and investors caught their bearings as the year wore on. This past earnings season was more run-of-the-mill in terms of preliminary announcements as firms re-aligned operations to the new normal. As the chart above shows, just 13 global companies issued a preliminary announcement in November.

The International Perspective

The spike in major U.S. firms’ preliminary announcements was later than that of non-North American firms. It’s as if you can see the virus spreading from the Far East to Europe to the U.S. in the preliminary earnings data trends captured by Wall Street Horizon. Conditions normalized surprisingly quickly as the year progressed. It’s also interesting that the current harsh wave of the Coronavirus has not yet led to a sharp uptick in prelims issued so far in Q4 as just 89 firms have announced a prelim through November displayed in the chart below. The world was shocked at the onset of the pandemic, but people adjust. The markets adjust, tooread on.

Figure 2

Source: Wall Street Horizon (as of November 30, 2020)

What about the year-on-year comparison? As the chart below shows, there have been spikes during earnings seasons this year, but November was not far from the total a year ago. If history is a guide, traders must monitor January for a potential spike in preliminary earnings reports for clues on the upcoming earnings season.

Figure 3

Source: Wall Street Horizon (as of November 30, 2020)

It’s All About Expectations

Turning back to the U.S., corporate earnings rebounded tremendously in Q2 and Q3 as government and central bank stimulus aided businesses and consumers. The earnings per share (EPS) beat rate among S&P 500 firms for those two quarters combined was the best in history. Funny thing, firms that beat on sales and earnings did not fare so well during next-day trading and even in the week after reporting. The market had come to expect positive results while Wall Street analysts were perhaps slow to up update their estimates.

A Market Shift?

Energy stands out among the 11 sectors of the S&P 500. Notice in the table below how energy companies that beat on both sales and EPS demonstrated a positive stock price reaction five days after reporting results. Ironically, many energy firms did not have “earnings,” but rather “losses.”

Relative Post-Reporting Performance (vs. S&P 500) for Sectors Based on Surprise

Figure 4

Source: FactSet, BofA US Equity & US Quant Strategy

You will notice the Information Technology sector, a high-flier this year, saw a bevy of negative stock price reactions. What’s also hard to line up is how the bulk of S&P 500 earnings came from tech-related companies while oil and gas names reported sharp earnings declines. November 2020 could have finally been the month value investors were waiting for. Here’s the pointtraders must dig deeper than simply comparing earnings to estimates. Preliminary earnings announcements can give us better clues.

Black Gold

So, let’s dig into the Energy sector to see what breadcrumbs exist to lead us to opportunities. Could hope spring eternal for this left-for-dead segment of the market that is now weighted less than 3% of the S&P 500? Wall Street Horizon preliminary earnings data picked up on an interesting trend that indicates improvementfewer oil & gas firms issued preliminaries as the year progressed.

Companies will often issue a preliminary earnings announcement to send a warning flag to the market regarding unusual news or results. It could be good, but when a firm within the worst-performing sector of the market does it, an investor will naturally assume some bad news is on the way once the quarterly report is released.

Several energy firms issued preliminary earnings announcements during the first quarter of 2020 as oil prices fell sharply. Recall how the May contract of WTI dropped to negative $40 per barrel. Six energy companies from around the world issued a preliminary announcement that quarter. There were just two energy preliminary announcements in Q2 though. In the last seven months, just ConocoPhillips (COP) and GeoPark (GPRK) have provided a preliminary report.

Crude Oil May 2020 Futures

Figure 5

Source: (as of November 30, 2020)

The pre-announcement by Conoco was particularly encouraging as the major U.S. oil exploration & production firm raised operating cash flow estimates and was optimistic about share repurchases resuming in late 2020. As shown in the chart below, since its September 30 prelim, COP is up more than 20%, helping to lead the sector ETF (XLE) higher. COP shares have also sharply outperformed the S&P 500.

COP, S&P 500 ETF, Energy Sector ETF Since September 30, 2020

Figure 6

Source: (as of November 30, 2020)

Investors should monitor preliminary earnings announcement trends within sectors. Significant market reactions happen when there is an inflection in sentiment and expectations among corporations.


As we approach the year-end, quarter-end, and the upcoming new year, investors and their earnings expectations will benefit from carefully watching for preliminaries issued by their companies of interest. Especially as a sector-based approach investment can be quickly affected by individual companies disclosing earnings ahead of their confirmed dates. The prelim may indicate positive, negative, or neutral economics for the firm. That may be indicative of a pattern for peer-to-peer firms within the sector or perhaps what those disclosures might mean for like or related sectors. Timely research into the preliminaries will well inform investors on the possible future direction of their covered sectors and provide them with more time to adjust their trading and risk strategies as needed.

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The material presented is for informational purposes only. The views expressed in the material are the views of the author and are subject to change based on market and other conditions and factors; moreover, they do not necessarily represent the official views of Wall Street Horizon and its affiliates.

This blog post has been written by a third-party contributor and does not necessarily reflect the opinion of FactSet Research Systems Inc.

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Michael D. Raines

Director of Quantitative Data Solutions, Wall Street Horizon

Mr. Michael D. Raines is Director of Quantitative Data Solutions within Wall Street Horizon’s Quantitative Solutions Team. In this role, he is responsible for sales, data research, and project management. He has 20 years of professional experience working with investment firms and financial services on a broad range of capital market issues. Prior, he was with Thomson Reuters and ITG. Mr. Raines earned an ALM in Foreign Literature, 14th Century Italian, from Harvard University and a BA in English from the University of Oregon. He is also a member of the Chicago Quantitative Alliance (CQA).