The end of earnings downturn is in sight

Please see below the latest ‘Chart of the Week’ from State Street Global Markets


The turn of the year has seen a number of risk factors decrease. The US/China trade war is not currently escalating, both the US and Iran appear to want de-escalation following recent tension, even Brexit is “getting done”. Furthermore Central Banks’ liquidity remains ample, and even rising. So is it plain sailing for the higher risk markets such as equities and high yield bonds? Well, maybe not. This week earnings’ season for the fourth-quarter of 2019 begins and analysts are busy revising expectations down. Current expectations for the S&P 500 are expected to contract by 1.5 percent which would be the fourth consecutive quarter of declining earnings. The silver lining is that analysts are usually too pessimistic. Historically they have underestimated earnings growth by nearly five percent and, were this to remain the case, this could be just enough to end the earnings downturn.


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