Financial Advice for Retirement, Social Security, IRAs and Estate Planning

Are Profits Peaking?

November 6, 2018

As I said in yesterday’s post, earnings growth is a major support for the bull market in stock. This article makes the case that earnings growth probably peaked for this cycle, and that could be bad for stock investors. The factors limiting earnings growth appear to be lining up. The key question for investors is whether lower earnings growth will lead to a correction, or will it be something worse? There’s a big difference between lower growth, which means a repricing of stocks, and a decline in earnings caused by a recession, which leads to a significant repricing.

However, that looks to be the end of double-digit gains for the near future. 2019 is expected to yield a 9.3 percent increase that, while still substantial, indicates a considerable slowdown as well.

“Not surprisingly, investors also wonder if EPS peaks have historically coincided with equity price sell-offs,” Sam Stovall, chief investment strategist at CFRA, said in a note. “The unfortunate answer is yes.”

To quantify, the bad news is that the current trend points to more market losses. Stovall estimates that the total current correction, which saw the S&P 500 down 9.4 percent at one point, could end up around the historical average for such periods of 14 percent.

 

 

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