The U.S. third-quarter corporate earnings reporting season will kick off next week and the numbers will reflect a second quarter dominated by the coronavirus pandemic that has created an uneven playing field in which some companies thrive, while others shrink and fade.
While stock indexes have set records and big technology and online retailers have outperformed, many other industries and individual companies are grappling with deteriorating sales and earnings as economic growth has slumped across the globe.
“A lot of company risk is not being captured by equity indices,” said James Gellert, chief executive of Rapid Ratings, a data and analytics company that assesses the financial health of private and public companies. “The equity market is showing a lot of optimism, but below the surface, there’s an ocean of companies that are dealing with a crisis.”
Companies doing business with bigger enterprises in hard-hit sectors that sell to or buy from them are aware of the financial health of those customers or vendors, he said. The market may suggest a company is doing well, but the difference between financial health and market health “can be very different.”
Sebastian Leburn, senior portfolio manager at Boston Private, agreed. “You’ve got the economy and the stock market, and you’ve got the S&P 500,” Leburn said.
Leburn noted that the S&P 500 index (SPX) is market-capitalization weighted, so its performance is skewed by just a handful of mega-cap tech stocks. Those companies, led by