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We are close to the end of earnings season for the second quarter of this year  - Q2 2020. The numbers have not been great, but we knew that the numbers were not going to look good. Few companies have dwelt on the numbers when conducting their quarterly conference calls. Everybody is looking forward and trying to project confidence that their company will survive the pandemic. Some companies are correct, and some are wrong.

We have seen bankruptcies rise so far this year with some big names falling from grace. After the global financial crisis,  bankruptcies did not peak in 2008. The peak came later as companies that were hobbled by the crisis fought on for a couple more quarters or even years before succumbing. Many struggling companies believe that they can make it through the crisis and that things will be rosier on the other side. Looking at the big names that have filed so far this year, there have not been any real surprises. It has mostly been old retailers. These companies were highly levered and caught flat footed by the rise of online shopping over the past decade., so it should really not be a surprise that they are filing for bankruptcy now. These are the types of companies that we in general try to avoid investing in. Don’t be surprised when big names struggle and declare bankruptcy, but remember that there are sectors of the economy that are humming along right now. The pandemic accelerated some trends, such as online shopping, food delivery, work from home, and a decrease in business travel. Even without COVID, these trends would have made for a long slog downhill for many prominent companies. The pandemic has only hastened the inevitable day of reckoning.
 

We have talked several times about how the stock market recovery has not been broad. In general, if a company is not a large cap tech company, it has not been doing that well. You can see, in the chart directly above, from the actual earnings perspective that most industries suffered, while a few sectors  (Utilities, Health Care, and Tech) have seen their earnings grow in this difficult time.

We never know how this will all play out in the end, but we are always watching events and staying vigilant.

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