Unhappy New Year

Analysts predict glum 2019 for US earnings growth

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What's going on?

According to multiple reports from leading investment banks this week, 2019’s going to be a glum year for US stocks.

What does this mean?

Big banks’ analysts, who forecast how much revenue and profit companies are going to make, have been steadily reducing their expectations for US firms’ earnings in 2019. Two months ago, analysts were predicting average profit growth of 10% next year, but that’s now fallen to 8% – and some think 3% is more realistic. Indeed, Morgan Stanley thinks there’s a 50% chance the US experiences two successive quarters of profits declining – a.k.a. an earnings recession.

The tech sector’s borne the brunt of the downgrades: in the third quarter of this year, tech grew earnings by almost 30%, but by the same time next year, only 2% profit growth is expected.

Why should I care?

For markets: Nothing lasts forever.

In 2018, US stocks benefited from still-low interest rates, which kept borrowing cheap and helped fund record share buybacks; lower taxes also helped boost profit growth. But rates are firmly on the up – and with profit-pilfering trade tariffs dead ahead, 2019’s growth buffet bar looks rather bare. That said, analysts at Goldman Sachs think that good US economic data isn’t being reflected in stocks’ performance of late – and that it could therefore be a good time to buy. Agree to disagree…

For you personally: US tech stocks matter to everyone.

According to Finimize’s analysis of the largest US and UK robo-advisors, investors in the average US robo have 50% of their portfolio in American stocks; in the UK, it’s a little over 20%. Tech stocks are also firm favorites of millennial stock traders; and when 10% of the US stock market consists of three companies (Apple, Amazon and Microsoft) (tweet this), you can bet even conservative pension funds have some skin in the tech game, too. Wherever and whoever you are, then, US stocks’ performance is likely to affect you.

Originally posted as part of the Finimize daily email.

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