More blowout earnings. What comes after that?
AP Business Writer
NEW YORK — Forget about “What have you done for me lately?” The big question investors will be asking companies this upcoming earnings season is: What will you do next?
Companies are lining up to tell investors how much they made during the last three months of 2018, and the reports get going in earnest this upcoming week with Citigroup and a slew of other banks on deck. Expectations are high, and Wall Street is forecasting a fifth straight quarter where profit growth topped 10% for S&P 500 companies.
Markets could use some encouragement following the worst December for stocks since the Great Depression. But investors are likely less interested in companies’ performance over the last three months as what they have to say about the trends for 2019.
Economic growth around the world is expected to slow this year, and rising payroll costs could be eating into company profits. Trying to judge the impact on profits, investors will pay more attention to the conference calls that CEOS hold with analysts and shareholders after reporting their quarterly results.
“The market is going to be very focused on the calls,” said Ernie Cecilia, chief investment officer at Bryn Mawr Trust. “It’s going to be about revenue expectations and margins more than anything.”
Analysts have been expecting profit growth to slow for companies in 2019 following their blowout 2018, when the first year of lower tax rates provided a big, onetime boost. Wall Street has been slashing its forecasts for 2019 profit growth in recent weeks
Without the tax benefit, companies need to either drum up more revenue or extract more profit from each $1 in sales to push their profits higher. And some big name companies have cited pain caused by other challenges, such as the global trade war.
Apple, for example, shocked Wall Street when it said this month that China’s economy was slowing more sharply than it expected and slashed its revenue forecast for the final quarter of 2018. Rival Samsung cited weak global demand for chips when it said it expects a roughly 29% drop in operating profit for the fourth quarter.
Companies, meanwhile, are finally giving bigger pay raises to their employees. After years of sluggish gains, workers’ hourly earnings rose 3.2% last month for the strongest growth since 2009. While that’s good for workers, it can mean lower profit margins for companies unless they can pass along their cost increases to their customers. Given the slowing economy, that may not be easy.
That’s why Wall Street is now forecasting earnings growth for S&P 500 companies to drop by more than half to 7% this year from 20% in 2018. Three months ago, analysts were forecasting a healthier 10% jump in 2019 earnings.
If you have a few extra bucks that you don’t need for necessities like rent or loan payments, consider shopping for happiness.
From ancient philosophers to current behaviorists, people have been pondering the link between money and happiness. Among them is author Gretchen Rubin, who thinks about happiness for a living. She’s written several books on happiness, including “The Happiness Project” and the forthcoming “Outer Order, Inner Calm.”
She helped think through the question of whether you can use discretionary money to buy happiness. Short answer: probably not. But you can definitely spend money to increase it. A lifetime happiness shopping list might go like this.
Buy better relationships. It’s a recurring theme. “So if you’re spending your money to broaden relationships, that’s a good way to spend money,” Rubin said. Use discretionary money to attend a college reunion or a friend’s destination wedding. Young
nadults often experience an intense period of socializing, searching for life partners and networking for career opportunities — all potential sources of happiness. Maybe increase barandrestaurant spending or pay for a dating app.
Buy experiences — and some things. The usual advice is “buy experiences, not things.” But that requires a deeper dive.
n“What I find is often the line between experiences and things is not that clear,” Rubin said. A bicycle can provide an experience, and a new camera can preserve one. So buy experiences, especially with other people, but also think about buying material things to enhance your experiences. Buy solutions. Also known as “throw money at the problem.” “One thing that makes people happier