Bulls versus Bears: Analysts Are Split on the Earnings Outlook

Strong first-quarter performance

US equity markets had a remarkable first quarter—the best first quarter since 1998. In the first quarter, the S&P 500 (SPY), the Dow Jones Industrial Average Index (DIA), and the NASDAQ Composite (QQQ) rose 13.0%, 11.0%, and 16.5%, respectively. Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG) rose 27.2%, 18.6%, 21.0%, 33.2%, and 13.3%, respectively. The strong quarterly performance was more noteworthy given the dismal returns in the previous quarter led by tech stocks.

Bulls versus Bears: Analysts Are Split on the Earnings Outlook

Focus shifting to earnings

Since the end of the first quarter, investors’ focus has been shifting to companies’ first-quarter earnings season. The market mood could be more somber. According to the consensus, the S&P 500 might report lower earnings for the first time in more than two years.

Earnings decline

As reported by CNBC, analysts’ consensus is calling for an earnings decline of 3.9%—a fall of 7.2% compared to the fourth quarter of 2018. The decline from 2018 is mainly the result of higher costs due to tighter labor markets, the ongoing US-China trade war, and the fading impact of US tax reforms.

According to CNBC, most of the equity market strategists expect the S&P 500 to end 2019 higher compared to 2018. While Morgan Stanley and Barclays are the most bearish among the strategists, Deutsche Bank is the most bullish.