Oct 30, 2018 - Economy
Strong earnings are stoking uncertainty fears
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The stock market isn't applauding solid corporate earnings, but that's not new this quarter — it's been happening for the past year.
Why it matters: Fears of a downturn have increased, with investors worried about slowing global growth, the tax cut "sugar high" wearing off, and ongoing trade disputes.
- “It’s starting to feel like the market is pricing in a greater likelihood of a recession in 2019," Lee Piantedosi of investment management firm Eaton Vance told the Wall Street Journal last week.
Analysts predict earnings growth will hit 20% this year, but heightened uncertainty has them rethinking 2019 estimates that already were 50% lower.
- "The consensus outlook for earnings growth is way too rosy next year," Morgan Stanley analyst Michael Wilson wrote in a note this week., adding that the sell-off could turn into a full-fledged bear market (i.e., decline of 20% of more).
- Richard Turnill, BlackRock's chief investment strategist, wrote in a recent note that uncertainty around future earnings growth "will likely remain high.'"
Executives have been warning about prospects for their companies' future quarters, even as they report solid results.
- Amazon and Caterpillar are recent examples of this, while Boeing and Ford are among the companies that gave weaker-than-expected guidance earlier this year.
