Analysts: Earnings Will Improve in 2020

Forecast seems to hinge on progress in resolving the trade dispute. Hmmmm.

Amid all the caterwauling about stinky corporate earnings in our future, analysts are feeling a little better about 2020.

By their estimates, earnings for the S&P 500 look nice next year. After an expected negative 4.6% reading for this year’s third quarter (companies are starting their reporting) and a minuscule positive 2.3% increase in the fourth, the projected performance for all of 2019 is up a mere 1.1%). Ah, never fear:  the profits picture improves in the upcoming year, according to the FactSet Research analysts’ consensus.

Next year’s first quarter will climb by 7.3% in the first period and 8.6% in the second, they say. For 2020’s final two quarters, profits for the broad market index will be slightly over 10%. Calendar year 2020 overall would tally a 10.6% increase. That’s not very impressive when compared to the showing for 2018, when earnings nudged 20%. But this would be a lot better than 2019’s pathetic score.

Wait a minute. With growth slowing worldwide and dour signals in the US, such as a falloff in manufacturing, how can anyone possibly be optimistic about 2020?

An upbeat expectation on the US-China trade war, that’s how. As John Lynch, chief investment strategist at LPL Financial, explained it, some rapprochement in the conflict will come to pass. In a note to clients, he wrote that “we think better days lie ahead.” Although he doubted that a grand, all-encompassing deal will be struck, he predicted “progress on trade to keep U.S. economic growth at or above the trend” will be enough to keep the economic expansion going.

Beijing and Washington are supposedly hammering out the details of an initial agreement affecting intellectual property protection for the US and agricultural sales to China, along with a delay on new US tariffs on the Chinese.

But we’ve seen these talks founder before. We’ve also seen analysts getting too positive about the future. In its report from last February, FactSet had earnings accelerating through the year to finish out with a 9.9% showing in the final quarter of 2019, and 6.6% for the entire year. That was wide of the mark, to say the least.


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