An analysis of corporate profits isn’t as straightforward as it would appear from the business-news headlines.
Stock investors of all stripes care about corporate earnings. Lately the earnings picture for the broad stock market has been cloudier than ever, frustrating professional and armchair analysts alike.
Where earnings are headed in the second half of 2020 is still difficult to figure out given the uncertainty surrounding the reopening of the economy, said Jeff Buchbinder, a market strategist at investment research firm LPL Financial.
“Until we get a vaccine, or dramatic leaps forward in treatments that make people comfortable resuming some semblance of normal life, earnings will have an extremely difficult time returning to pre-pandemic levels,” he said.
Investors should be aware that even in normal years, an analysis of corporate profits — the main driver of stock market returns over time — isn’t as straightforward as it would appear from the business news headlines.
In fact, there are frequently two versions of earnings for any given company in any given quarter. If you are assessing an individual stock, it’s important to be clear about which version you’re looking at, and why.
It might surprise you to learn that the accounting of corporate profits required by law in every publicly traded company’s earnings statement is frequently not the version touted in the news.
