The long-awaited earnings recession has lastly arrived, however traders are nonetheless too optimistic and may anticipate extra disappointment because the 12 months drags on, in keeping with Morgan Stanley.
Fairness chief Mike Wilson lowered his 2019 S&P 500 earnings per share development expectation to 1 p.c from 4.Three p.c based mostly on the various downward revenue revisions throughout the fourth-quarter reporting season.
And whereas consensus numbers are already pricing in zero development for the primary half of this 12 months, Wilson argued that predictions for a reacceleration within the second half of 2019 are misplaced. He stated the 12 months might finish with earnings down as a lot as 3.5 p.c total.
“We’re more and more satisfied that consensus earnings expectations for 2019 have additional to fall and that the optimistic uptick at present baked into fourth-quarter 2019 estimates is unlikely,” Wilson wrote Monday. “A modest additional decline in earnings will ship the earnings recession we referred to as for. Fairness returns can nonetheless be constructive on this setting, however they are going to possible be weaker than they in any other case would have been.”
Supply: John Butters, FactSet
Wilson, who first predicted an earnings recession in 2018, now sees 2019 S&P 500 EPS at $164, beneath the consensus estimate of $170.
The strategist added that when traders have assumed a bounce in earnings development 4 quarters out prior to now, the numbers for all 4 quarters forward are inclined to fall however the development quarter tends to fall probably the most. In truth, if present estimates transfer in keeping with historical past, traders might see a full-year decline of three.5 p.c in S&P earnings, he wrote.
About 66 p.c of the S&P 500 has reported fourth-quarter 2018 earnings to date. Whereas almost 70 p.c have topped analyst expectations on the underside line, solely 60 p.c have shocked to the upside on income. Wanting forward, Refinitiv joined different market information researchers FactSet and S&P final week in predicting a decline in S&P 500 earnings within the first quarter of 2019.
FactSet predicted a first-quarter earnings lack of 2.1 p.c as of Monday morning.