Monday Markets Mail #KW 33

on 10th August 2020

Q2 reporting season - Company results present themselves better than feared

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Kathrein statement
  • Company results reflect economic slump in Q2
  • All in all, positive surprises outweigh
  • TEC stocks dominate the market
In the past two weeks, the reporting season in the USA and Europe, which had been eagerly expected in the light of Covid-19, reached its peak. Most of the major companies have published their figures and we can speak of a positive development in both the USA and Europe, as both sales and profit growth in total exceeded the pessimistic expectations due to Covid-19. To put it more precisely, company results were not as bad as feared, which gave some support to the stock markets. Nevertheless, the negative impact of the containment measures was clearly evident in the second quarter. In aggregate, the S&P 500 companies reported to date have seen their earnings fall by 9% and in Europe (Bloomberg Europe 500) by almost 19%.

At the sector level, the energy sector shows the largest declines in sales and profits due to the sharp drop in oil prices. Interest rate cuts by global central banks around the world impacted profits in the financial sector, although sales remained relatively stable. Overall, however, the results here were also better than expected. Surprisingly, cyclical consumption was strong, benefiting in particular from Amazon and good figures from individual companies in the automotive sector (Autozone, O'Reilly Automotive Inc.). Amazon posted net sales of USD 88.9 bn for Q2 2020 (+40% year-on-year), significantly exceeding the consensus of USD 81.6 bn. Analysts also speak of a quarter of superlatives. There was also exciting news from the IT sector.

The tech giants in particular proved to be largely immune to COVID-19 or were even able to benefit from it. Facebook, too, made a surprisingly strong showing in the second quarter of 2020 despite COVID-19 and calls for a boycott with media impact. All in all, total sales rose by 10.7% year-on-year to USD 18.69 bn, significantly exceeding the analysts' consensus of USD 17.36 bn. Apple's expectations were subdued due to the Corona pandemic. Nevertheless, Apple was able to increase sales by 11 % compared to Q2/2019. Booked service sales reached a record USD 13.3 billion. Thus, Apple achieved a turnover of 58.31 billion dollars in the past quarter with a profit of 11.25 billion dollars (2.55 dollars earnings per share). The streaming giant Netflix also benefited disproportionately from the COVID 19 pandemic in the second quarter. Around 10.1 million new payment subscriptions were booked worldwide between April and the end of June 2020. At the end of the quarter Netflix had almost 193 million paid memberships. Financially, things have been running smoothly lately: Revenues increased by around 25% year-on-year to USD 6.1 billion.

Currently, the "Super Seven" ─ including Apple, Amazon, Netflix, Facebook, Alphabet, Microsoft and Tesla─ have a market capitalization of around USD 7,600 bn and an (estimated) weighting of almost 25% in the S&P 500 (Tesla is officially not yet part of the S&P 500 index, but could soon be included, which is why we have included it in our calculations). Since the beginning of the year, these seven companies have gained about 60% in the equally weighted aggregate, which means that the bulk of the good US stock performance is attributable to a handful of stocks.