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The US results season starts completely this week.
In the future, several hundred listed companies will present the results of the first quarter of the year, and major banks J.P Morgan and Wells Fargo will open the ball among the biggest Friday.
Chief strategist Christian Lie of Danske Bank says this season of results "is becoming more important than for a long time".
– The recovery of the stock markets can be strengthened if companies have a positive surprise and especially if they envisage relatively promising prospects. But, on the other hand, it can also work from whoever takes the balloon air to the market, says Lie.
Waiting for the first three-year negative quarter
While corporate earnings growth forecasts fell sharply in the first three months of the year, equity markets rose sharply.
A number of analysts expect the quarter to be the worst in three years for companies in the broad S & P 500 index, which includes the 500 largest publicly traded US companies.
Analysts expect the S & P 500's after-tax earnings to fall 4.2% in the first quarter of the year compared with the same period last year, according to the agency. FactSet analysis.
In this case, it will be the negative first quarter since the second quarter of 2016, when the companies recorded a 3.2% decline in profits.
– The low expectations are due to the fact that it was extremely strong last year, which makes it difficult to grow as strongly. The companies are also experiencing a tightening of margins, which are expected to decrease by 1.1% year-on-year, which will be the weakest trend since 2016, says Lie.
Pressed margins
For most of 2018, companies included in the S & P 500 index have delivered bundles, in part because of tax cuts granted by the Trump government to their companies.
Lie said investors will pay close attention to how companies are considering future prospects for their margins.
US companies are experiencing rising wage costs and, recently, wage growth in the country has been at its peak since 2009.
– We found in the fourth quarter that this was the highest proportion of firms reporting wage costs as a topic since 2005. If the tightening of the US labor market makes firms more concerned about wage costs and therefore margins, this could affect how they feel about profitability. before.
– In addition, the prices of the factors of production of many American companies increased because of the tariffs of Trump, added Lie.
Greater probability of positive surprises
At the beginning of the first quarter, analysts forecast earnings growth of 2.8% from the first quarter of last year, according to FactSet.
So far higher than expected, which suggests a drop of 4.2%.
– The degradation is twice as strong as the average observed historically. This means that the probability of getting more companies that have a positive surprise has increased, says Lie.
The profits of the 500 largest publicly traded companies in the United States are expected to increase slightly over the course of the year, with most of them expected in the fourth quarter. Overall, earnings growth of 3.6% is expected for 2019, according to FactSet.
– This is the lowest estimate for the entire calendar year before the publication of the report for the first quarter of 23 years. The question is whether they get it right or not, but we believe in growth below the consensus.
Lie believes in particular that a strengthened dollar during the first quarter creates challenges for businesses.
– About 42% of the business turnover of the S & P 500 companies comes from abroad, he said.
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