Despite its record highs, the US stock market is “stuck in a really uninspiring and unsatisfactory earnings environment”, says Jonathan Golub of UBS, a bank. The latest estimates suggest that S&P 500 profits will decline by 0.6% year-on-year in the first quarter. And the outlook is hardly auspicious.
Disappointing outlooks from companies are on the rise. The ratio of negative-to-positive earnings pre-announcements is approaching the peak seen in early 2009, say Michael Mackenzie and Arash Massoudi in the Financial Times. It hardly helps that analysts tend to pencil in the strongest earnings performance in the last few months of the year.
In the last few years their expectations have been dashed and this year’s forecasts look lofty (see chart). The tepid payroll figures last week showed that the US recovery is still patchy, but weakness overseas, notably in Europe, also bodes ill for profits.
The Federal Reserve’s money printing is counteracting the shaky fundamentals for now. But it can’t hide the fact that “relative to profits, revenues and the economy”, the market looks overvalued, says Jack Ablin of Harris Private Bank.