The story this earnings season won’t be about falling corporate profits; it’ll be about recession fears, Axios' Courtenay Brown reports.
The backdrop: Investors are looking for hints of an economic slowdown as companies begin reporting first quarter earnings. (Economists overwhelmingly predict GDP growth slowed during the first 3 months of the year.)
- As we’ve reported, the market isn't punishing companies as much as it typically does for less-than-stellar results.
- Analysts say earnings will fall 3.9% from their Q1 2018 level, yet the S&P has risen 13% in the year's first 3 months and more than 20% from its December low.
Why it matters: "Corporate profits have been the key driver of the stock market in the last 10 years," James Liu, founder of research firm Clearnomics, wrote in a recent note to clients. But the market has completely ignored predictions of declining earnings growth in the first quarter.
- There's been an acceptance that earnings growth was bound to decelerate this year after getting a boost from the tax cut in 2018.
- Profits aren't falling because of declining sales, but margins are shrinking thanks to higher labor and material costs.
For first time in a decade, U.S. companies are expected to report lower profits, but also report higher revenue, Reuters reports.
Be smart: Nick Raich, founder of research firm Earnings Scout, tells CNBC "the market could be very sensitive to macro events like tariffs or slower global growth," rather than falling earnings.
Of note: We've seen investors react to how companies are talking about a potential recession, for fear that signals — like the yield curve inversion, a potentially less-hot labor market and slowing growth around the world — are also showing up on executives' radars.
- One example: Shares of JP Morgan fell 1.7% when CFO Marianne Lake said that "recessionary indicators ... are not flashing red, but they are off the floor" in February, as Reuters points out.
What to watch: JP Morgan and Wells Fargo will field questions from analysts later this morning, after reporting earnings.
- In a press release alongside its earnings announcement, JP Morgan CEO Jamie Dimon reiterated his confidence in the economy, despite global geopolitical uncertainty.