Goldman Sachs lays out 4 themes from 2nd-quarter earnings set to shape the economy’s future

  • Quarterly analyst calls revealed a spate of updates on how companies expect the economy to change throughout its recovery.
  • Goldman Sachs pored over more than 130 calls and found a collection of nascent trends influencing corporate behaviour.
  • Here are the four key themes that emerged throughout the second quarter, according to the bank.
  • Visit the Business Insider homepage for more stories.

Second-quarter earnings calls reveal a few trends likely to inform markets and the economy’s future until well after the coronavirus pandemic ends, according to Goldman Sachs.

The three-month period was the first to entirely fall within the pandemic, offering analysts a look at how companies are adapting to the longer-than-expected downturn. Online retail operations grew, stay-at-home products flourished, and the financial industry thrived on a wave of new retail investors. Yet a resurgence in virus cases and prolonged quarantine activity has now turned once-temporary phenomena into lasting trends.

Here are the four themes the team led by David Kostin sees shaping the economy as it rebounds.

Read more:
MORGAN STANLEY: Buy these 9 top-rated stocks now for market-beating returns of 15% or more over the next 3 months

Home work

The jury’s still out on whether remote work is the new norm or an aberration. Several companies expressed positive outlooks towards continuing stay-at-home work, while others repeated their plans to get back into offices as soon as possible.

A select few firms are already transitioning to either hybrid or entirely-remote setups as a way to cut down on office costs and broaden their talent pool, Goldman said. Tech firms are likely to be the first to make major work-from-home shifts, while industrial companies or those reliant on factories may face continued weakness as the virus rages on, the bank added.

Back to the drawing board

Many companies are reworking their operations to survive – or even profit from – the virus-slammed economy. Executives continued to accelerate digitization and e-commerce initiatives, the analysts said. Consumers spent the quarter increasing their use of online shopping, contactless payments, and virtual wallets. Food-delivery businesses surged in popularity, with Uber’s own Eats segment offsetting losses in its flagship rideshare service for the first time ever.

While the first quarter had most companies viewing the pandemic and related lockdowns as a temporary problem, the recent quarter showed firms making permanent changes meant to unlock value for years to come.

Read more:
Travis Briggs has more than doubled his clients’ money since 2014 by investing in robotics. He told us the 5 stocks best-positioned for the seismic technological shifts the coronavirus has caused.

“Executives emphasised their ability to improve scalability and health safety by automating previously manual supply chain processes,” Goldman said.

Some firms focused on cost-cutting instead of investment. Airlines retired planes, companies slashed workforces, and frivolous travel expenses were eliminated. The saving activity helped push quarterly earnings above hopes and boost margins more than expected. Goldman raised its S&P 500 forecast in response, seeing the stronger profits last well into 2021.

Everlasting uncertainty

Though several companies doubled-down on their stay-at-home pivots, most expressed concern around the economy’s uncertain trajectory. Executives touted mixed opinions on whether a vaccine would arrive on time to quell the virus. Some firms pointed to strong early trial results as a sign of economic recovery to come. Others were more doubtful and suggested that, even after a vaccine is approved, it may take longer than anticipated for citizens to embrace it.

Other companies looked to rebounding infection rates as a cause for concern. Normalization in some industries was relatively short-lived, as soaring case counts plunged several states back into quarantines. The infection rate has since slowed again, and Goldman sees the economic recovery smoothing out if one key threat is avoided.

“Our economists do not expect the economy to face another hard lockdown and believe that the reopening of schools will be the largest near-term risk to infection rates,” the analysts said.

Lastly, some companies worried that the upcoming presidential election would further roil the economy. Should Vice President Joe Biden take the White House, the potential raising of corporate tax rates could slam all sectors, Goldman said. Energy firms are particularly vulnerable to a Biden presidency, as the candidate has pitched aggressive regulation of the fossil fuel industry. However, Biden’s proposed fiscal expansion could offset some losses, the bank said.

Read more:
Goldman Sachs explains the biggest factors that will drive returns in all 11 stock-market sectors amid virus uncertainty – and lays out how you should position your portfolio in each one

Spending all over again

Companies highlighted efforts capitalise on lasting demand for pandemic-related products.

“Although many ‘Stay at Home’ metrics have moderated since the initial lockdowns, social distancing campaigns and virus prevention measures continue to drive consumers to activities at home or outdoors,” the team said.

Revenues for takeout dining and indoor recreation surged, as did those for outdoor activities like camping and home improvement. Goldman’s reopening scale reached a 4 this week, with 1 signifying a full lockdown and 10 representing complete reopening. Though back-to-normal businesses should see an improvement, stay-at-home plays continue to succeed.

Now read more markets coverage from Markets Insider and Business Insider:

Novavax soars 13% after inking deal with UK for 60 million doses of coronavirus vaccine

Morgan Stanley upgrades Tesla stock and boosts price target on high hopes for battery business

A 50-year gold vet and co-creator of its largest ETF shared 2 strategies investors should be using now amid the rise to new highs – and told us why his ‘bull-case scenario’ hasn’t yet come to pass