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Bulls versus Bears: Analysts Are Split on the Earnings Outlook

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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.

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.

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