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.
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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.”
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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
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