Quraterly earnings for the S&P 500 are expected to decline for the first time since the second quarter of 2016, even though the index is just 2% from its historic high.
First-quarter earnings for the S&P 500 are projected to decline 2.5% from last year, according to Refinitiv consensus estimates.
Stocks up with earnings down? To Nick Raich at Earnings Scout, it is a reason to be a bit cautious: “At the minimum, it indicates the market could be very sensitive to macro events like tariffs or slower global growth.”
Stocks are rising even with lower earnings because of the focus on the future, not the past. The stock market is a discounting mechanism for a future stream of earnings.
The “bull narrative” is still dominant on Wall Street — that China and Europe are bottoming — and this will stabilize markets. Raich puts it simply: “The markets have gone from pricing in negative growth in the first half to rapidly re-accelerating growth in the fourth quarter and the beginning of 2020.”
Many industries that were under pressure in the fourth quarter — think semiconductors — have snapped back in 2019 on the “bottoming” story. Major semiconductor supplier Samsung, for example, said in January that demand would recover in the second half of the year, and Wall Street has bought into that story.
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