Strategists led by Mike Wilson, whose forecast for a decline in profits this year is gaining traction on Wall Street, now predict S&P 500 companies will earn $162 a share in 2020, unchanged from what’s expected in 2019.
Tuesday 11, June 2019
(Bloomberg) --Morgan Stanley turned more cautious on US corporate earnings, slashing its forecast for next year as President Donald Trump’s escalating trade skirmishes weigh on an already fragile global economy.
The strategists had forecast a five per cent increase. If the new call bears out, corporate America will notch two consecutive years of zero profit growth, the weakest stretch since the 2015-2016 oil-induced recession.
“Even in the absence of incremental trade escalation our earnings model was already calling for negative EPS growth over the next 12 months, trade tensions add to the downside in earnings,” said Wilson.
While an outlier at the start of the year, Wilson’s projection that companies will suffer two consecutive quarters of profit declines in 2019 has found more allies. Last week, strategists at both Bank of America and Citigroup reduced profit forecasts while pointing out the risk of a recession.
US equities have defied the worsening earnings sentiment as the Federal Reserve opened the door for interest-rate cuts.
Morgan Stanley stated that an extended trade war with China threatens to darken what’s already a bleak profit picture. The extra costs from higher imports on Chinese goods would hurt profit margins, with autos, electrical equipment and machinery as well as textiles, computers and certain chemical/commodity industries most vulnerable.