Earnings growth projections have remained positive globally, even as trade tensions have rattled financial markets this week.
Lately, headlines on the U.S.-China trade dispute have distracted investors, and a few pockets of the global economy have weakened over the last several months. Fixed income markets have positioned for a marked economic slowdown with the yield curve again nearing inversion (long-term rates falling below short-term rates).
Uncertainty can be uncomfortable, but in times of market volatility, we encourage investors to focus on long-term fundamentals instead of short-term noise. One of the fundamental pillars we like to focus on is company earnings.
As shown in the LPL Chart of the Day, earnings in all three major global regions are expected to rise this year. U.S. companies are poised to lead, with consensus expectations for 4.2% profit growth in 2019.
“The bar for earnings results is low because of heightened uncertainty,” said LPL Research Chief Investment Strategist John Lynch. “Economic growth may be moderating internationally, but we see enough catalysts ahead to drive another year of record profits in the U.S.”
U.S. company profits escaped last quarter’s soft patch, based on earnings results from about 85% of constituents that have already reported. S&P 500 Index profits likely grew about 1% year over year in the first quarter of 2019, markedly better than the 2–4% decline expected at the beginning of the reporting season, depending on the data source. Better-than-feared earnings have helped push the S&P 500 to all-time highs over the past few weeks and we expect improving earnings to carry stocks going forward.
Earnings expectations for developed and emerging markets (EM) are below U.S. projections. However, we think EM earnings projections may be too pessimistic. Global market volatility, trade tensions, and a strong U.S. dollar have contributed to reduced EM growth expectations in recent months, but we think the Federal Reserve’s pause should help cap gains in the U.S. dollar and help fuel stronger global currencies and EM economic activity.
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