Market Minute - May 14, 2019
Last year’s earnings growth for the S&P 500 will be a tough act to follow. Earnings increased over 20% in 2018 with the help of tax cuts and record stock buybacks by corporations. A lower share count boosts earnings per share and therefore the growth reported by these companies. How does 2019 look now that most of the companies in the S&P 500 have reported first quarter earnings?
There was talk of an earnings recession to start 2019 which is considered two consecutive quarters of negative earnings growth. The catalysts that boosted growth last year are fading and many investors expected numbers to come down this year. The question is by how much and will growth turn negative? The chart below from JPMorgan shows the numbers as reported through April.
As you can see, the earnings for the first quarter of this year indicate growth but it’s close to flat. These numbers are subject to change as the remaining companies report their earnings. The chart also breaks down earnings into three drivers of growth and how much each has contributed. Analyst estimates are calling for close to flat earnings again in Q2 and see growth picking up in the back half of the year.
The rally we’ve seen year to date has brought valuations near previous levels before the selloff late last year while earnings estimates have come down. The growth projections for 2019 earnings are for low single digits and the recent trade news brings additional uncertainty into the mix. While focusing too much on quarterly numbers can be distracting to maintaining a long-term portfolio, it is important to gauge where things stand on a periodic basis.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. Where applicable, all data and information has been gathered from sources believed to be accurate such as the internet, nonaffiliated 3rd parties, news articles and professional subscriptions but this information is not warranted to be correct, complete or true.