It’s All about Earnings

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Fundamentals drive markets, and by fundamentals we mean corporate earnings. So it is no surprise that investors are a little jittery about earnings season, which kicks off in earnest today. Expectations are for -2.5% growth in 1Q19 compared to 1Q18. Yes, negative growth. Recall that 1Q18 earnings were given a boost by the 2017 tax cuts, and that boost has set a high bar to beat. But also consider that on January 1, 4Q18 earnings growth was initially expected to be 11.7%, and ended up at 16.9% when all was said and done a few weeks ago.

Companies slashed expectations in December on the heels of wild swings in the market and widespread fears of a global slowdown. It was a storm before the calm — those estimates may have been too pessimistic. Earnings usually surprise on the upside; because of the magnitude of the downgrade in expectations, the surprises may be higher than usual. Evercore ISI just released a note estimating 1Q19 S&P 500 earnings to be up 4.3%. We too expect growth, just not double-digit growth. The bull market might not be a spring chicken but it may still have a little spring in its step.

Stay tuned and please see the latest Global Perspectives quarterly commentary – Markets Springing Ahead, not Springing a Leak.

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