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Corporate America's view on 2019 stinks

Myles Udland
Markets Reporter

This year will not be great for the economy, according to corporate America.

On Tuesday, Stanley Black & Decker (SWK) and Johnson & Johnson (JNJ) became the two most recent multinational giants to give a downbeat outlook for the year ahead.

Stanley Black & Decker lowered its 2019 earnings outlook with the company now forecasting adjusted earning per share of $8.45-$8.65 against Wall Street’s expectations for earnings of $8.80 this year. In slashing its outlook, the company said, “During 2018 we successfully navigated dynamic end markets and overcame multiple external headwinds while delivering a strong overall financial performance. We are preparing for a similar operating environment in 2019.”

Johnson & Johnson offered 2019 earnings guidance that was roughly in-line with the Street — saying adjusted earnings this year will fall between $8.50-$8.65 against forecasts to earn $8.61 per share, according to data from Bloomberg — but sent the broader healthcare sector lower on Tuesday after guiding to sales that were below estimates, with revenue expected to grow in a range of just 0%-1% in 2019.

And these warnings for 2019 results are just the latest in a round of downbeat outlooks offered this month from the likes of Apple (AAPL), Ford (F), Sherwin-Williams (SHW), PPG (PPG), and American Express (AXP), among others.

So as we head into the teeth of fourth quarter earnings season, the way that corporate America is looking at the economy this year and beyond is becoming clear — things are not good.

As we noted last week on The Final Round, analysts have pared their forecasts for the current quarter substantially and the outlook is now worse than the historical trend, as analysts tend to grow more constructive during earnings season because companies beat the guidance they lowered in the run-up to their quarterly report.

And FactSet noted last week that earnings forecasts for the first half of 2019 have been slashed by 4.5% over the last three months, the most since the post-oil crash revisions in 2015 and the second-largest reduction in analysts’ forecast for the first half of a year since the financial crisis.

Earnings revisions for the first half of 2019 have been the worst in four years and the second-worse since the financial crisis. (Source: FactSet)

The market action at the end of 2018 reflected investors pricing in, at a minimum, a more uncertain outlook than what had been presented to investors in recent years. The question at the beginning of trading this year, then, is just what news had been accounted for by the market.

Considering the solid run we’ve seen in stocks to begin the year, a surface-level reading suggests more bad news was priced in last year than the market believes is warranted. Some analysts, however, believe this rally will eventually be tested amid the continuing onslaught of negative news.

“A modest earnings recession got priced in late December but that's questionable now; yet earnings revisions are plummeting on worse sector breadth than during 2016's earnings recession,” said Mike Wilson at Morgan Stanley on Tuesday.

“A rebound off extremes and hope around political headlines have helped move the market higher, but we don't like the risk-reward of chasing stocks at these levels,” Wilson adds. “Technically, we think the odds of a full or partial retest of the December lows are still relatively high which would bring the S&P 500 back to 2450, at a minimum.”

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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