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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.”

Advertisement

Recommended

Visit/investments/stockmarkets/600687/us-china-trade-truce-boosts-stockmarkets-for-now
Stockmarkets

US-China trade truce boosts stockmarkets – for now

Markets brightened up after China agreed to import more from the US and America greed to lower some tariffs on Chinese goods. But the trade war is far…
27 Jan 2020
Visit/investments/stockmarkets/us-stockmarkets/600643/plaid-visas-pricey-bet-on-the-future-of-finance
US stockmarkets

Plaid: Visa’s pricey bet on the future of finance

Visa has paid $5.3bn for fintech start-up Plaid, following on from last year’s purchase of cross-border payments company Earthport.
16 Jan 2020
Visit/investments/stockmarkets/600642/boeings-bleak-future
Stockmarkets

Boeing’s bleak future

Aircraft maker Boeing’s nosedive has accelerated this week owing to emails highlighting its toxic corporate culture. Matthew Partridge reports.
16 Jan 2020
Visit/517682/chart-of-the-week-2
Stockmarkets

Chart of the week: US stocks outrun profits

The US stockmarket has become totally detached from underlying profits of its constituent companies over the past three years.
11 Nov 2019

Most Popular

Visit/economy/uk-economy/600837/rishi-sunak-new-chancellor-spending-splurge
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020
Visit/economy/600814/money-minute-friday-14-february-the-latest-from-rbs-britains-state-owned-bank
Economy

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020
Visit/investments/property/600826/living-on-a-houseboat-the-pros-and-cons-of-a-floating-home
Property

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020
Visit/investments/stockmarkets/european-stockmarkets/600725/is-2020-the-year-for-european-small-cap
Sponsored

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019