EC The Market's Earnings Uncertainty

This chart is tracking consensus earnings growth expectations for the S&P 500 index since the second half of the year got underway. As you can see, estimates were effectively unchanged during the September quarter, but they have been on a steady downtrend since early October.

The chart below shows the one-year performance of the S&P 500. It is probably not a coincidence that the pronounced downtrend in the market in early October coincides with the downtrend in earnings estimates.

It is hard to envision stocks stabilizing if the market’s collective earnings outlook for 2019 continues to deteriorate. And to get stability in earnings outlook, we need clarity and visibility on the interconnected economic growth and tariff fronts. In other words, there is likely further downside to consensus expectations for full-year 2019. 

Q4 Earnings Season Gets Underway

The Q4 earnings season will unofficially get going with the January 15th earnings reports from JPMorgan (JPM - Free Report) and Wells Fargo (WFC - Free Report) , but officially the reporting cycle has gotten underway already, with results from 18 S&P 500 companies already out. All of these 18 companies reported results for their fiscal November-quarter results, which we count as part of the December-quarter tally. We have another two index members on deck to report results this week.

Total Q4 earnings for these 18 index members that have reported results already are up +14.9% from the same period last year on +9% higher revenues, with 77.8% beating EPS estimates and 66.7% beating revenue estimates.

The earnings growth pace and the proportion of positive EPS surprises for these 18 S&P 500 members is tracking below what we had seen from the same group of companies in the preceding earnings season, as the comparison charts below show.

For Q4 as a whole, total earnings for the S&P 500 index are expected to be up +11.7% from the same period last year on +5.3% higher revenues, which would follow the +25.6% earnings growth on +8.4% higher revenues in 2018 Q3.

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Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on and in the print and electronic media. ...

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