INSUBCONTINENT EXCLUSIVE:
NEW YORK: As Wall Street braces for the first quarterly decline in earnings in nearly three years, some investors are wondering if the
market is factoring in a bigger erosion in profit margins than will actually come to pass.
Forecasts for US earnings, after a big boost from
corporate tax cuts in 2018, are falling sharply in 2019
But revenue forecasts remain relatively robust, leaving an expected spike in costs as the main reason for profitability to weaken.
But some
and the stronger US dollar are among the biggest potential risks to corporate margins this year.
For the first quarter, analysts are
forecasting a year-over-year SP 500 earnings decline of 0.5 per cent, according to IBES data from Refinitiv
Second-quarter earnings are still expected to grow 3.5 per cent, though that estimate also is down sharply from the start of the year.
The
drop in forecasts has led to talk of a profit recession, defined as at least two consecutive quarters of year-over-year earnings declines
The last US profit recession ran from July 2015 through June of 2016.
Projected revenue for SP 500 companies has been more resilient, with
up better than the estimates suggest, at least for the majority of SP 500 companies.
They said profit margins are eroding sharply for
several heavily weighted companies, including Apple, Exxon Mobil and chipmakers like Micron Technology, which are skewing data for the
entire SP benchmark index.
A recent drop in oil prices has hurt margins for energy companies, a slowdown in the semiconductor business cycle
has hit companies in that space and other firms have boosted investment expenses, said Patrick Palfrey, senior equity strategist at Credit
been limited in earnings calls for the fourth-quarter reporting period, which is nearing an end.
Goldman Sachs strategists wrote in a note
on Wednesday that while some companies are feeling the pressures of rising wages, more consumer-facing companies, including Discover
In the 12 months through January, the US consumer price index rose 1.6 per cent, the smallest gain since June 2017, according to US data
released on Wednesday.
Though slower than 2018, US economic growth was forecast to average 2.4 per cent this year, according to a Reuters
