[ad_1]
By Caroline Valetkevitch
NEWYORK (Reuters) – The earnings outlook of US companies is more negative than over the years, which has had the effect of smoothing the US stock market in full growth in anticipation of disappointment at the start of the reporting season .
A worrying sign: the ratio of negative forecasts to positive expectations of companies in the S & P 500 for the second quarter is at its highest level since the third quarter of 2016, while companies were just out of the decline in their profits for the last four quarters. IBES Refinitiv data.
The negative outlook for the second quarter is 3.8 to 1 higher than the positive, while the average ratio for the previous four quarters is 1.9 to 1.
This pessimism is also reflected in badysts' second-quarter earnings estimates, which now expect a 0.4% year-on-year decline for S & P 500 companies after a several weeks, according to Refinitiv data.
With the top three US stock indexes breaking records last week as the Federal Reserve expects interest rate cuts this month, some strategists believe earnings could disappoint investors if the results are not better than expected or if companies are optimistic.
"The bar is well above what it was a month ago, because of the strength of the market," said Michael James, general manager of equity trading at Wedbush Securities in Los Angeles.
"The results must be better and the forecasts positive to continue the upward trajectory in the second half of the year."
The weak results may temper the enthusiasm generated by the rates, the strategists of the UBS wrote in a note on Friday.
"While we expect a slight rise in equities in our base scenario, larger gains in equity markets may not materialize until earnings growth resumes," they wrote.
The S & P 500 <.SPX>, which closed above 3,000 for the first time on Friday, is now trading at 17.2 times term profits, up from 14.4 on January 1, after a strong sell in the market at the end of 2018 .
The focus is on corporate profits this week, when major US banks, including Citigroup Inc.
Since the majority of companies tend to exceed estimates, actual profits could be in positive territory. This is what happened during the reporting season of the first quarter, which should show a decline in profits but lead to growth of 1.6%, based on data from Refinitiv.
Instead, attention may be focused on what companies say about consumer spending, the impact of the US-China trade war on corporate earnings, and the benefits that might resemble second half of the year. Analysts expect earnings growth of 0.3% in the third quarter and 6.8% in the fourth.
Difficult comparisons with last year, when tax cuts generated a profit of 24.9% in the second quarter, are also a factor.
"It's not about whether a company beats or beats. It's more about the comments in the calls for results that speak directly about what companies are doing to tackle tariffs. If companies are really struggling with this situation, the chances of tariffs going down are diminishing, "said Jamie Cox, managing partner at Harris Financial Group in Richmond, Va.
IMPACT OF PRICES
Businesses have warned against the effects of tariffs, which increase costs for US companies and may force them to raise prices for their products.[[[[
Energy and materials are among the sectors whose second-quarter estimates have been the most down in recent weeks. Profits in the materials sector are expected to be down 31.4% from a year ago, while profits in energy would be down 7%, according to Refinitiv. At the same time, tech profits would have declined 7.9% in the quarter.
"As we look at the second quarter results, I think the observed global slowdown and higher cost of inputs to the cost structure will weigh on margins more than expected," said Jeff Schulze, Strategist. in investment at ClearBridge Investments in New York.
(Report by Caroline Valetkevitch, additional report by April Joyner, edited by Alden Bentley and Cynthia Osterman)
Source link
