By Selina Stoller, Summit Consumer Receivables Acquisitions, LLC ***
Even though Wall Street is booming, company earnings could soon take a slight downward turn.
Profits rose more than 20 percent in the first half of 2018 with lower corporate taxes encouraging growth which helped fuel the market. Stocks are climbing so far this year due to better than expected fourth-quarter earnings. The Fed’s insistence that they will be more “patient” with future interest rate hikes has also helped.
Experts are predicting profits for the S&P 500 companies to decline nearly 1 percent during the first quarter of 2019 compared to the same time period last year. If this happens, it would be the first overall drop in earnings since the second quarter of 2016. But the booming stock market suggests investors may be focusing on year-end success instead of possible first-quarter losses.
Many companies have already warned their shareholders about the early months of 2019 and have recently slashed their first quarter outlooks. Some people see the Fed’s sudden shift on interest rate hikes as an omen that the economy is slowing faster than expected.
Other investing experts think the expected earnings pullback is a hasty exaggeration. Most of the companies that reported warnings so far are in energy and technology – which can also be explained by the drop in oil prices last year along with weaker demand for smartphones.
Estimates for companies in the banking, health care, and retail sectors remain relatively stable. So unless Corporate America starts warning of weaker profits more broadly, investors should look at any first quarter weaknesses as a rarity.
Overall, analysts predict profits will be up nearly 6 percent in 2019. Even if profits fall in the first quarter, they should make a comeback at the end of the year – results will still be good enough to make investors happy.
The volatile stock market at the end of 2018 helped investors put things into perspective. For now, stocks are thriving because investors care a lot more about corporate profits on Wall Street than any drama in Washington.
- 14 Feb, 2019
- Josh Smith