Coronavirus scare obscures US profit picture

With the spread of the coronavirus occupying the news, investors may have missed some interesting developments in US corporate earnings

“Earnings season is fast being forgotten” amid “cascading fear” of the coronavirus, write Elena Popina and Lu Wang for Bloomberg. Investors would usually spend the end of January scouring the latest quarterly earnings reports. Instead the market is “ruled by anxiety”. Even “surprisingly strong earnings” from market stalwarts Apple and Amazon have failed to cheer people up.

It is worth keeping an eye on US corporate earnings all the same. As Maggie Fitzgerald notes on CNBC, at over 200%, “the size of the stockmarket relative to the size of the economy is at an all-time high”. On another measure, the cyclically adjusted price/earnings ratio, US stock have not been this expensive since the 2000 dotcom bubble.

Unless corporate profitability picks up then those heady valuations risk crashing back down to earth. In 2019 third-quarter earnings fell by 0.4% year-on-year. If the fourth quarter is also negative then earnings will have fallen into recession. Yet the current earnings season has been “better than you think”, says Jack Hough for Barron’s.

With two-thirds of S&P 500 companies reporting, profits that were predicted to fall 1% in the fourth quarter are down by just 0.3%. Still negative but going in the right direction. In 2020 first-quarter earnings growth should hit 4% as energy and tech stocks work through temporary setbacks that hampered 2019. “Not quite olé! but still OK.”

Recommended

US stockmarkets shrug off the mob's rampage through the US Capitol building
US stockmarkets

US stockmarkets shrug off the mob's rampage through the US Capitol building

US stockmarkets seem more interested in the results of Senate elections in Georgia than on the lawless mob's raid on the country's Capitol building.
14 Jan 2021
DoorDash won't deliver for investors. Here's how to short it
Trading

DoorDash won't deliver for investors. Here's how to short it

American food-delivery app DoorDash can’t even make money in a pandemic. Matthew Partridge explains the best way to short it.
20 Jan 2021
Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021
Elon Musk: the space oddity seeking world domination
People

Elon Musk: the space oddity seeking world domination

Elon Musk, the electric-car and space-travel pioneer who wants to move to Mars is now the world’s richest man. If he seems delusional, that’s all part…
16 Jan 2021

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021
The best investment trusts to buy for 2021
Investment trusts

The best investment trusts to buy for 2021

Sectors ranging from emerging markets to student accommodation look poised to do well this year, says David Stevenson, as he picks the best investment…
19 Jan 2021