'What is going on here?' Equity investors must focus on bigger picture as earnings season unfolds

Look beyond quarterly figures to assess long-term value

In their new book 'Radical Uncertainty', economists John Kay and former Bank of England governor Sir Mervyn King argue that in the middle of a crisis, decision makers should take a step back and ask, "What is going on here?"

This deceptively simple question can yield useful information about the specific dynamics of the moment, as well as the longer-term implications of current trends. It is particularly useful advice for equity investors as companies disclose their financial performance for the second quarter of the year. After months of turmoil, the fog of war is lifting, exposing the damage caused by the lockdown-related slump in economic activity. Data provider Refinitiv estimates Q2 earnings across the S&P 500 index fell 40% on average compared with the same period in 2019. This would represent th...