Analysts Weigh In on Possibility of Earnings Recession

Morgan Stanley

Morgan Stanley’s (MS) chief equity strategist, Michael Wilson, is the most bearish on Wall Street regarding projections for the S&P 500’s (SPY) target for the end of 2019. His target for the S&P 500 is 2,750 by the end of 2019. Wilson was also among the first strategists to warn about an earnings recession.

Analysts Weigh In on Possibility of Earnings Recession

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As CNBC reports, Wilson wrote in a note, “A lowered bar into the quarter does not mean the likelihood of a beat is greater.” He noted that in fact, the likelihood of “lackluster” beats is high given the high ratio of companies offering negative guidance as compared to positive guidance.

Sector-level earnings

The outlook for sector-level earnings is also not much better. The EPS estimates for all 11 sectors have been revised downward since the end of 2018. A total of seven sectors out of 11 are expected to have negative earnings growth, which implies expectations of a broad-based decline. Wilson added, “the biggest drag on earnings is expected to come from tech, which is predicted to contribute -2.1% to the headline number.”

Other analysts

Not all analysts, however, are as bearish on their earnings outlook as MS is, as we highlighted in Bulls versus Bears: Analysts Are Split on the Earnings Outlook. BMO’s equity strategist, Brian Belski, doesn’t think that an earnings recession is happening. As reported by Bloomberg, Belski thinks that the earnings recession fears are “overblown.”

Credit Suisse (CS) also thinks that the market would be able to avoid an earnings recession. VS’s chief US equity strategist, Jonathan Golub, thinks that the earnings could be slowing down more than expected but he thinks that investors might be willing to pay a higher multiple due to the improved sentiment.

Whether we can avoid an earnings recession or not remains to be seen, but there is no doubt that we are seeing a significant slowdown. Apple (AAPL) and NVIDIA (NVDA) have warned that China’s slowdown is hurting their earnings. Advanced Micro Devices (AMD), Micron (MU), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOG) have also been impacted by the trade tensions between the two largest economies in the world.