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Perspectives

Are US earnings expectations for next year too high?

By Joe Fiorica, Investment Strategist

July 12, 2019Posted InEquities and Investment Strategy

We expect that second quarterly results will be stronger than current consensus, possibly as strong as 2-3% growth once earnings season is over. Our base case for 2019 S&P 500 EPS remains around $170 per share (4-5% growth), though we see some downside risk to this estimate given recent data. While 2019 estimates have been revised down over the course of this year, 2020 earnings expectations likely remain too optimistic.

High frequency activity indicators point to a modest but positive quarter for US corporate profits. Forward-looking and sentiment gauge surveys tell a slightly less optimistic story.

We will be particularly attentive to earnings conference calls, as a slowdown in capital expenditures so far this year has raised concerns about underlying demand and the prospects for future profits.

Digging into expected earnings at the sector level reveals a great deal of dispersion under the hood in the second quarter Technology, which comprises a number of trade-sensitive names in the semiconductor and hardware space, is likely to have seen a year-over-year earnings contraction in the quarter.  Health care, our favorite sector, is expected to lead the pack with modest but positive growth.

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