A deluge of income could make or break the feeling

NEW YORK (Reuters) – Next week we will determine with great concern whether investors should worry about the prospect of a earnings recession or whether consecutive quarters of negative growth can be avoided in the week ahead. the heaviest when it comes to publishing results. by American companies.

A broad range of sectors of the S & P 500 is expected to report next week, with 155 companies representing more than $ 9 trillion in pending market capitalization, or more than 35% of the index total.

Heavyweights Facebook and Amazon are expected to report a dozen components of Dow such as United Technologies, Coca-Cola, Microsoft and Exxon Mobil.

"We will continue to focus on the benefits and the message, so far the message has not been as good," said Ken Polcari, General Manager of Butcher Joseph Asset Management in New York. .

"If they continue to be what they are, that kind of mediocre relationships, the market is going to run out and it will go backwards." It will be an important week just for management. "

Financial data show that analysts expect a first decline in profits from one year to another since 2016. The profits of this group are expected to be down 1.7% Thursday morning.

The rapidly slippery expectations for second-quarter earnings growth raised concerns about a profit recession. At present, growth is forecast at 2.1% in the second quarter, down from 6.5% at the beginning of the year and 9.2% on October 1st. .

"That's the big question, is it really a revenue recession?" Said Kim Forrest, chief investment officer of Bokeh Capital Partners in Pittsburgh.

Forrest said that although some companies have been able to limit profits because of their ability to control costs, investors would prefer profits to increase with the strength of consumption.

The financial data show that 77 companies in the S & P 500 have published, with forecasts exceeding 77.9%, compared to the success rate of 65% recorded since 1994 and 76% in the last four quarters.

In a recent note to clients, Michael Wilson, US equity strategist at Morgan Stanley, said companies are likely to beat the "much lower mark" for the first quarter, but they say it will not be the bottom l & # 39; year.

Mr. Wilson noted that with the S & P 500 Index now above the top of its valuation range with a P / E ratio of 16.8, there is not much left of positive without a recovery in growth currently anticipated by the market.

(Graph: PE report ahead of S & P – tmsnrt.rs/2VPXmOV)

This return to growth has also been challenged by the unenthusiastic picture described by the business outlook. The current ratio of negative ads to positive ads is 2.7, well above the average of 1.5 over the past four quarters, but consistent with the 1997 long-term average.

And while this number has increased over the past year, some believe that last year's reforms have had a positive impact on the results of tax reform and have reached unsustainable levels this year.

"It's just a return to normal, which we're used to seeing in this quarter," said Lindsey Bell, investment strategist at CFRA Research in New York.

If the results of next week were to drive the earnings season into recession, the market could not go off the rails, which allowed it to recover after the last month of 2016, fueled in part by fears of a slowing growth in China.

"Even if we had a recession of income, for me it's not the end of the world, because the comparisons are excellent compared to the previous year and we had a recession of profits before recovering," he said. David Joy, Market Head. strategist at Ameriprise Financial in Boston.

"We came out of this situation once we were all comfortable with the idea that the Chinese economy was developing again and that we are in a similar situation.