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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

Ben Geman, author of Generate
44 mins ago - Energy & Environment

Carbon emissions are roaring back from COVID-19

Expand chart
Data: IEA Global Energy Review 2021; Chart: Axios Visuals

Global energy-related carbon emissions will surge this year as coal, oil and natural gas consumption return from the pandemic that caused an unprecedented emissions decline, the International Energy Agency estimated Tuesday.

Why it matters: The projected rise of nearly 5% would be the largest since the "carbon intensive" recovery from the financial crisis over a decade ago, IEA said, putting emissions just below their 2019 peak.

1 hour ago - Axios Twin Cities

Jurors resume deliberations as the nation awaits Chauvin verdict

Protesters outside Hennepin County Government Center on the day of closing arguments. Photo: Christopher Mark Juhn/Anadolu Agency via Getty Images

Jurors in the Derek Chauvin trial resume deliberations Tuesday morning as the nation waits for a verdict.

The latest: The 12 jurors met behind closed doors for about three hours Monday before breaking for the night at 8pm.

John Frank, author of Denver
1 hour ago - Axios Denver

What national marijuana legalization would mean for Colorado

Illustration: Sarah Grillo/Axios

Colorado's cannabis industry is enjoying an era of prosperity as national attitudes toward marijuana become more relaxed.

Driving the news: 17 states have legalized recreational marijuana sales and pot enjoys its highest popularity ever with 68% of adults backing legalization, according to a recent Gallup poll.