When the Stock Market Goes Mad, Look for Real Value

This may be the least informative earnings season in history. Companies’ first-quarter financial results are scarcely relevant because they cover a period that mostly predated the pandemic. About a fifth of S&P 500 companies have stopped guiding Wall Street analysts about how much they expect to earn this year. Wild swings in the market give the impression that stock prices have become unanchored from reality.

Here’s the surprise, though. The lack of information about the short-term situation may force investors to do what they should have been doing all along, namely focus on companies’ long-term earnings potential. Lazy expedients such as extrapolating the latest results into the future or leaning on the forecasts of the chief financial officer aren’t working right now. Stock prices are being influenced instead by meaningful considerations: Is there a future for cruise ships? Will we need less office space because we’re staying home, or more because we’ll sit farther apart? Will distancing create more demand for cars and less for airlines?