US investors look to strong earnings season

NEW YORK: Nervous stock investors are hoping an unusually US strong earnings season can restore some of the optimism that characterised equity markets last year. Imploding technology stocks and fears of a trade war have pummeled the market in recent days. Given the surge in volatility this year, there is no guarantee that worst is over.

Analysts predict strong results when reporting season starts up next month, with first-quarter S&P 500 profit growth on track to be the highest in seven years, according to Thomson Reuters data. That follows a blockbuster fourthquarter period, and recent corporate tax cuts that boosted forecasts for all of 2018.

A robust earnings period would bring back the focus on fundamentals and possibly put a floor under prices, supporting views that the 9-year-old bull market will go on, strategists said. “It’s going to be earnings,” said Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC in New York. “The market has given up so much that earnings can start to redirect attention back into a market that has gotten much cheaper relative to where we were.”

With this year’s sell-off and rising profit forecasts, stocks also are near the cheapest on a price-toearnings basis that they have been since late 2016. The S&P 500 is trading at about 16.5 times forward earnings, well below the 18.9 level it was at in mid-December, according to Thomson Reuters data.

Stocks’ rout in early February, and more recent selling following worries over a US trade war with China, Facebook privacy issues and a collapse in other tech leaders, have made investors skittish and more likely to discount the relatively strong economic backdrop that persists.

“We’ve been caught up in all of these things that could happen and may happen and that the sky is falling, but once earnings season kicks in, it’s headline news and that steals away some of the negativity,” said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta.

To be sure, next week brings the monthly US jobs report, a potential catalyst for further volatility. A strong payrolls report in early February had helped spark the stock sell-off that drove the S&P 500 more than 10-per cent below its Jan. 26 record high — a “correction.” The job report briefly drove up bond yields and touched off worries that the Federal Reserve may need to speed up interest rate hikes. The S&P 500 is now about 8 per cent below its record.

Just in the first three months of this year, the S&P has jumped or fallen one per cent on 23 trading days, three times the number of one-per cent moves it made in all of 2017. In 2016, there were 48 such days.