April is earnings season and the next big test among the COVID-19 volatility that has punished the markets and investors. As of the time of this article the Dow has posted a 30.27% loss YTD effectively wiping out gains back to October 2016 levels.
The current sell-off activity is largely around what impacts the virus “may have” on businesses and individuals economically. We are only just beginning to see some of the impacts as states mandate closure of non-essential places of gathering (malls, restaurants, bars). This signifies some of the first impacts to individual income outside of the stadium and concession workers of professional sports (the leaders by and large of shut-downs as information became available).
So why is April positioned for additional volatility? The first reason is on the actual earnings reports themselves, as even in a ‘normal’ market there can be steep gains or losses from company earnings. More importantly, the markets will be listening for the forward guidance. This is the part of an earnings call where the outlooks moving forward are reported on and an idea of impacts COVID-19 may be having on such businesses. For this reason, we believe the market has made some attempts to ‘price in’ the potential impacts to businesses with these sell-offs. We also believe that the markets will make significant moves again in mid-April dependent on both the status of COVID-19 coupled with the earnings reports/guidance provided at the time. For this reason we are advising out investors against becoming overly-exuberant on the COVID-19 curve alone and to be mindful of the upcoming earnings that may hold markets until such further guidance is delivered.