Feb 13, 2019

Analysts are scaling back their corporate profit predictions

Illustration: Rebecca Zisser/Axios

After predicting eye-popping 11% first quarter profit growth for S&P 500 companies last year, analysts have massively scaled back expectations to the tune of roughly $16 billion in profits. They are now predicting the first year-over-year decline in 3 years.

Why it matters: Those lofty expectations had been set as recently as March and have come down drastically since, with some now predicting an "earnings recession" — negative earnings growth in the first two quarters of the year.

  • The drawdown in expectations has its origins in many of the same factors that economists say could cause an unexpected economic recession: overhang from the trade war and fears that damage from the Fed’s contentious rate hiking cycle has already taken hold.

What happened: Estimations of how much and how long companies would benefit from tax reform were way too high, judging by the ratcheted up expectations after passage of the tax bill, which have since been revised down.

  • But disaster may not be imminent.

The big picture: There’s no clear correlation between an earnings recession and an economic recession. The last earnings recession started in the third quarter of 2015 and the economy continued to grow.

  • "Equity returns can still be positive [during an earnings recession], but they will likely be weaker than they otherwise would have been," Mike Wilson, an equity strategist at Morgan Stanley, wrote in a note to clients this week.

Be smart: If an earnings recession does happen it's expected to be short-lived. Analysts still expect fourth-quarter earnings to be 9% higher than they were a year previously.

Expand chart
Data: FactSet; Chart: Chris Canipe/Axios

Analysts' expectations for S&P 500 earnings growth this quarter started to drift downward from 6% at the end of last year — in the midst of the stock market sell-off — to the current estimate of -1.2%.

  • Meanwhile, Q4 earnings growth expectations are on the upswing as S&P 500 companies report stronger than expected results. But growth estimates for Q1 are declining as those companies give soft forward-looking guidance.
  • So far, 53 S&P 500 companies have issued negative guidance for Q1, while only 12 have revised guidance upward, according to FactSet.

Go deeper: Corporate profits aren't as great as you think (and might not last)

Go deeper

In photos: Authorities issue warning as Americans venture out for Memorial Day weekend

Venice Beach in Los Angeles on May 24. Photo: David McNew/Getty Images

Authorities urged Americans to maintain social distancing and wear masks against the coronavirus amid reports of packed beaches and bars during the Memorial Day weekend.

Driving the news: Law enforcement stepped up beach patrols, authorities on Florida's Gulf Coast closed parking lots because they were full and there were crowded scenes at Lake of the Ozarks bars in Missouri, per AP, which reports a shooting injured several people at a packed Daytona Beach in Florida.

Coronavirus dashboard

Illustration: Aïda Amer/Axios

  1. Global: Total confirmed cases as of 9:30 p.m. ET: 5,405,029 — Total deaths: 344,997 — Total recoveries — 2,168,408Map.
  2. U.S.: Total confirmed cases as of 9:30 p.m. ET: 1,642,021 — Total deaths: 97,698 — Total recoveries: 366,736 — Total tested: 14,163,195Map.
  3. World: White House announces travel restrictions on Brazil, coronavirus hotspot in Southern Hemisphere Over 100 coronavirus cases in Germany tied to single day of church services — Boris Johnson backs top aide amid reports that he broke U.K. lockdown while exhibiting symptoms.
  4. Public health: Officials are urging Americans to wear masks headed into Memorial Day weekend Report finds "little evidence" coronavirus under control in most statesHurricanes, wildfires, the flu could strain COVID-19 response
  5. Economy: White House economic adviser Kevin Hassett says it's possible the unemployment rate could still be in double digits by November's election — Public employees brace for layoffs.
  6. Federal government: Trump attacks a Columbia University study that suggests earlier lockdown could have saved 36,000 American lives.
  7. What should I do? Hydroxychloroquine questions answeredTraveling, asthma, dishes, disinfectants and being contagiousMasks, lending books and self-isolatingExercise, laundry, what counts as soap — Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingHow to minimize your risk.
  8. Other resources: CDC on how to avoid the virus, what to do if you get it, the right mask to wear.

Subscribe to Mike Allen's Axios AM to follow our coronavirus coverage each morning from your inbox.

Updated 1 hour ago - Politics & Policy

Republicans sue California over mail-out ballot plan

California Gov. Gavin Newsom during a February news conference in Sacramento, California. Photo: Justin Sullivan/Getty Images

President Trump accused Democrats of trying "Rig" November's general election as Republican groups filed a lawsuit against California Sunday in an attempt to stop Gov. Gavin Newsom (D) from mailing ballots to all registered voters.

Driving the news: Newsom signed an executive order this month in response to the coronavirus pandemic ensuring that all registered voters in the state receive a mail-in ballot.