The season of negative results has become positive, forecasts are too low

Business earnings forecasts for the second quarter have been so downgraded that companies are beating them easily and forecasts of negative earnings growth should already become positive after the first few dozens of reports.

The earnings season kicked off this week, with 43 S & P 500 companies reporting Wednesday morning and a whopping 84% higher than badysts' estimates. Refinitiv's S & P 500 earnings growth forecasts were negative by 0.3% at one point, but with reports and forecasts for the rest of the S & P index, second-quarter earnings should grow by about 0.4%, a figure that could continue to rise.

Reported actual profits of the 9% reported S & P increased 8.8%.

"Whatever the economic circumstances and hindsight, there is a dynamic that companies like a lot and that badysts like to give them a leeway," said Ed Keon, chief investment strategist at the QMA. "The fact that the numbers are better than expected – that's been the case for decades."

The stock market, meanwhile, has traded sideways to fall slightly on the restricted volume this week, due to the deployment of results.

"After such a good race and the doldrums of the summer, I would not be surprised to see a slight decline here, I think the best way to think about this is that we are a little cautious, but we think that Stock prices will work higher during the year, "said Keon.

The S & P 500 is up about 19.5% for the year and from July to July, 1.8% after a gain of 7% in June.

"I think the market should somehow digest things," said Lindsey Bell, investment strategist at CFRA. "The second quarter is pretty good right now.It's still pretty early in the earnings season.I think the managers are pretty cautious because they provide guidance for the rest of the year."

However, Bell said the market may not continue to track all announced results, and could sell as soon as industrial companies begin to do so. These companies could discuss the negative impact of trade wars on profits and revenues, as Fastenal did last week by stating that its price increases could not offset rising costs.

"As we will have more manufacturers in the coming weeks, I think this will create more volatility and will cause a market downturn in the short term.You're looking at CSX's final market, its cars, its chemicals and its metals areas where I was expecting pressure, "she said. She added that the manufacturers have joined the market in the last month.

CSX reported lower than expected earnings on Tuesday afternoon, and its revenue fell from $ 3.1 billion to $ 3.06 billion. Shares of the railroad company plunged more than 10% on Wednesday, after lowering its forecast and CEO, Foote, blamed his performance on the economy and said "the current economic environment is one of the worst. one of the most confusing of my career ".

"I think the third quarter numbers will go down and the fourth quarter numbers, and the second quarter is pretty small," said Lindsey Bell, investment strategist at CFRA. She said S & P Capital IQ is now expecting a slight decline of about 1% in S & P 500 earnings in the second quarter, after a 2% decline previously. "The banks' performance has been pretty solid, and I think we're going to move closer to positive growth of 2% to 2.5% in the second quarter."

Citigroup launched the banks' results on Monday and was followed by J.P. Morgan, Goldman Sachs and Bank of America, among others. Financial companies' profits are now expected to grow by 8.7% for the quarter, up from 5.6% growth forecast on July 1, according to Refinitiv.

Bell said the big banks were cautious in their forecasts, especially because of the Fed's declining interest rate outlook.

"You are watching Bank of America and JP Morgan cutting their net interest forecasts.Also Citi said it would have an impact of $ 50 million (in terms of revenue ) each quarter for each reduction of 25 basis points, so a real impact, "adding the regional banks have better weathered this season of results. "I have the impression that banks are cautious enough to indicate how interest rate cuts will affect them, but it looks like investors are interested in others." aspects of their activities. "

Tech is starting to report this week, with IBM later Wednesday and Microsoft Thursday. Some of the names affected by the trade war, such as semiconductors, have had much lower forecasts. According to Refinitv, the benefits of the technology are expected to fall by 7.9%.

"I think maybe the worst is behind us, especially for the semi-finals, I think expectations are pretty low for the quarter, and we have not seen a decline in the technology sector since first quarter of 2016, "said Bell. "I think the expectations are low, I think the numbers in the second half will go down a bit more."

Keon said the manufacturing sector is expected to experience trade friction with China and the global slowdown, but retail sales data released this week showed the US consumer was strong. Some manufacturing companies have already reported problems with slowing growth, but their earnings should be strong enough to keep the market moving up, but at a slower pace than the first half.

"There is still uncertainty, but it does not seem like we are on the brink of a recession," he said. "It seems that the global manufacturing sector is going through a slowdown.As long as consumer demand is strong, GDP growth will be strong.If you do not go into recession, it's hard to have a bear market. "

– Juan Aruego from CNBC contributed to this story.