The cut in corporate tax rates added about 8% to S&P 500 corporate earnings growth in 2018 while other elements of the 2017 tax reform provided an additional boost last year. That is not going to happen again. So the slowdown in earnings growth in 2019 is really not as big as it seems.
In this week’s Market Signals podcast, our Research strategists preview the upcoming earnings season.
With earnings growth for S&P 500 companies in the mid-teens, the latest corporate earnings season could be a good one. Fueling that expectation is solid economic growth, tax cuts, and sharply higher energy sector profits.
While things are off to a good start overall, it’s early. Financial companies have benefited from improved net interest margins on loans and a pickup in loan growth. However, the fourth quarter was challenging for the capital markets, leading to mixed results. Tariffs and slower growth in China and Europe remain key risks. Expectations for earnings have been lowered, but that could be setting up a likely upside surprise.
Looking ahead, the strategists see solid 6-7% earnings gains to $172.50 per share in S&P 500 earnings. That could support double-digit stock market gains this year. Though earnings growth is slowing, primarily because of the anniversary of the December 2017 tax cuts, a slowdown and contraction are two very different things.
Tune in to get our strategists’ take on what could be a strong earnings season. If you haven’t already, subscribe to Market Signals on your favorite digital channel to access future and past podcasts.
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