Bulls Dread S&P 500 Earnings Outlook Downgrades


S&P 500 finishes above 3000

Things Bulls dread this earnings season is that it become the scene of a big downward cut in next year’s estimates.

It happened last year, helping foment the worst fourth quarter of the bull market. It is very early, but it is happening now.

Despite a week of good results, analysts last week chopped estimates for combined S&P 500 earnings in Y 2020 by almost 1, to 178.40/share. Down 0.5%, the decliner was the biggest for any week since January.

Analysts almost always over-estimate future earnings and lower their forecasts as a period draws near. And S&P 500 profits are projected to expand 10% in Y 2020, compared with 1.9% this year. But despite everything this Q Bulls need next year’s estimates to stand up.

Markets have to get comfortable that you’re going to see a re-acceleration of earnings growth.

Now just 2 wks into this reporting season, investors are already showing heightened sensitivity to instances where companies fail to live up to Wall Street’s earnings and revenue expectations.

Among S&P 500 companies that have announced results, 81% beat earnings estimates, a near-record pace.

Companies that missed on both sales and revenue saw their shares trail the market by 3.9 percentage points in 1st-day reactions, compared to the historical average of 2.4 pts, data compiled by Bank of America showed.

“This may suggest that investors are not yet confident enough in forward-looking outlooks to look through Q-3 misses,” BofA strategists wrote in a note.

While much has changed since a year ago, most notably the orientation of the Fed toward interest rates, investors are aware that earnings sentiment started to turn South right before the market meltdown.

DataTrek Research’s co-founder is among those who think analysts’ estimates have to come down a lot from current levels. Sales growth will be subdued, coming in between 3% and 4%, he estimated. Margin pressures like higher wages and input costs will “eat up” all those gains, making for 2020 profits that “essentially mirror” this year’s, at 163/share, he wrote to clients. That means virtually no growth.

For now, that risk does not seem to be registering with investors, thanks to a global effort from central banks to spur growth. But, it is only a matter of time for the reality to sink in. His model on earnings revisions suggested the S&P 500 would have been flat in the past 12 months, as opposed to an actual 6% increase.

Monday, the major US stock market indexes finished at: DJIA +57.44 at 26827.64, NAS Comp +73.44 at 8162.99, S&P 500 +20.52 at 3006.72

Volume: Trade on the NYSE came in at 778-M/shrs exchanged

  • NAS Comp +23.0% YTD
  • S&P 500 +19.9% YTD
  • DJIA +15.0% YTD
  • Russell 2000 +15.0% YTD

HeffX-LTN’s overall technical outlook for the US major stock market indexes is Bullish across the board.

Stay tuned…