Investors anxious to see signs of improvement in Q3

Anyone seeking earnings clarity won’t get that from the April-june reporting season starting next week, as that will mostly capture lockdown devastation. US and European Q2 earnings are tipped by Refinitiv to have shrunk 40% and 54% respectively.

Instead investors are anxious for companies to point to signs of improvement in the third quarter, said Quincy Krosby, chief market strategist at Prudential Financial in Newark.

Markets see 2021 as when “we’ll start to see essential improvements in the economy and from companies. The more that’s pushed out, the more difficult it is for the market,” Krosby said.

Reporting season is important for another reason – Morgan Stanley’s Sheets notes that current price/earnings ratios encompass a dire second quarter.

“Just by pressing the send button on Q2 earnings, your future earnings will rise. That will be optically important as we get through July,” Sheets said.

There is so far no sign policymakers are ready to hit the brakes on stimulus. In fact, Citi predicts US$6 trillion in central bank asset-buying over the coming year.

But the union of monetary and fiscal policy has made the difference, meaning upcoming decisions on initiatives such as US jobless supplements, Britain’s furloughs and the EU’S 750-billion-euro recovery fund are key.

Perhaps ultimately the number that matters most is the virus count. Half a million people are dead – a fifth of them in the world’s biggest economy. Controlling that spread may be what determines Trump’s re-election chances.

For all those reasons, markets are see-sawing between risk-on/risk-off, said David Arnaud, a fund manager at Canada Life Investments.

“The evolution of the virus is what will move markets – it’s a simple as that,” he said.