In the second quarter, the blended earnings decline for the\nS&P 500 was -0.4%, which was about the same as the decline in Q1. Put this\nall together, and that\u2019s where the earnings recession narrative comes from. <\/p>\n\n\n\n
It may feel to many readers like the odds are stacked\nagainst this bull market, and an earnings recession may be one more reason to\nerr on the side of caution. But before changing your mind \u2013 and potentially\nyour asset allocation \u2013 consider a few silver linings in the earnings story. <\/p>\n\n\n\n
More…
\n—————————————————————-<\/p>\n\n\n\n
Stay Steady & Focus on Fundamentals!<\/a><\/strong><\/p>\n\n\n\n Before I dive deeper into the earnings story, I want to\npoint out how important it is to keep an eye on economic indicators as opposed\nto making emotional, knee-jerk reactions. This can be difficult to do,\nespecially in the midst of so many negative news stories and fear of a recession.\nSo, to potentially help you do this, we are offering all readers a look into\nour just-released November 2019 Stock Market Outlook report. If you\nhave $500,000 or more to invest and want to learn more about these forecasts,\nclick on the link below to get your free report today!<\/p>\n\n\n\n IT’S FREE. Download the Just-Released November 2019 Stock Market Outlook<\/a>2 <\/a><\/sup>>><\/a><\/strong>\u00a0<\/a> Let\u2019s start with the second quarter. The blended earnings\nrate for the S&P 500 was indeed -0.4% from the previous year, but 75%\nof all companies reported a positive earnings-per-share (EPS) surprise and 56%\nof companies reported a positive revenue surprise. The 5-year average of\ncompanies beating earnings expectations is 72%, so even with negative\nyear-over-year EPS growth the 75% beat rate is ultimately a positive result.1<\/sup>\n <\/p>\n\n\n\n Fast forward to Q3, and we\u2019re seeing a similar trend\nforming. So far, 83.3% of reporting S&P 500 companies have beaten EPS\nestimates and 59.5% have reported beating revenue estimates. Assuming this\ntrend largely holds, we could see another quarter where more companies are\nbeating earnings expectations than normal. And that\u2019s a good thing.<\/p>\n\n\n\n There is another factor in play, too, that I\nbelieve investors should bear in mind. S&P 500 companies are facing an\nuphill battle for earnings growth, considering the tough comparisons to last\nyear when growth was boosted by the tax cut legislation. We expected this to weigh\non earnings growth in 2019, and many corporations warned that this would be the\ncase. I think that\u2019s one of the reasons why we\u2019re seeing strong performance\nfrom the S&P 500 this year, even as year-over-year earnings come in slightly\nnegative. <\/p>\n\n\n\n The sector with some of the toughest\ncomparisons is Tech. The Tech sector is the biggest earnings contributor in the\nS&P 500 index, bringing in 22.9% of the index\u2019s total earnings in the\nforward four-quarter period. It follows that weak earnings in tech can be a\nmajor drag to total S&P 500 earnings. If we are excluding the tech sector\u2019s\ndrag, the estimated total earnings growth for the remainder of the index would\nbe down only -1.8% (-4% with tech included). <\/p>\n\n\n\n As we drift further from the effect of the\ntax cut, we expect the year-over-year comparisons to normalize a bit with\nearnings growth coming back into the positive in the quarters ahead: <\/p>\n\n\n\n Bottom\nLine for Investors<\/strong><\/p>\n\n\n\n Moderating U.S. economic growth and notable\nslowdowns in other major global economic regions are certainly a factor in the\nS&P 500 year-over-year earnings declines. Uncertainty about the global\ntrade regime and increasingly protectionist policies are not helping matters\neither. But investors should consider that S&P 500 companies are currently\nfacing very tough comparisons from last year, and even still, more companies\nthan average are reporting better-than-expected results. As we drift away from\nthe tough comparisons and maybe \u2013 just maybe \u2013 get some clarity on trade, I\nthink the earnings picture will improve and return to positive year-over-year\ngrowth. <\/p>\n\n\n\n
\n
\nThis 22-page report contains some of our key forecasts to consider:<\/p>\n\n\n\n
——————————————————————<\/p>\n\n\n\n![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/motm_1019_updated_chart_Jon-1024x862.png\")
Source: Zacks.com1\ufeff<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n