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Are We Heading into an Earnings Recession?

Sheraz Mian

Including all of today’s results, we now have Q4 earnings reports from 435 S&P 500 members. Total earnings for these companies are up +12.6% from the same period last year on +5.9% higher revenues.

Looking at Q4 as a whole, combining the results that have come out with estimates for the still to come companies, total Q4 earnings growth is expected to reach +13.5% on +6.8% higher revenue growth. This is almost half of the growth pace of the first three quarters of the year.

Partly driving this decline in earnings growth in Q4 as well as the current and coming quarters is economic slowdown in China, Europe and other major economies that a number of bellwether companies like Apple (AAPL), Caterpillar (CAT), MMM (MMM) and others also cited in their earnings releases. Another major reason is tough comparisons. After all, the quarterly tallies in 2018 were all-time records, a big part of which was driven by the tax-cut legislation.

Estimates have been steadily coming down, with earnings growth in the current period (2019 Q1) now in negative territory and Q2 barely in positive territory. That said, I don’t buy into the earnings-recession narrative. While growth is no doubt decelerating, it is still positive and largely consistent with this stage of economic and earnings cycle.

Fr more details about the Q4 earnings season and expectations for the coming periods, please check out our Earnings Trends report >>>Q4 Earnings Season Winding Down


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