Market News
We are looking forward to the close of another quarter. The question, of course, is what will happen with Q2 earnings? As of right now, the forecasts are for a decline in S&P 500 earnings of –2.5% year-over-year for Q2. If this prediction becomes a reality, it will mark the second straight quarter that year-over-year EPS (earnings per share) declined. We have to remember, however, that the beginning of last year set a difficult standard to surpass, as the first two quarters of 2018 saw EPS skyrocket as a result of the tax cuts. If the earnings were smoothed over two years, there would still be significant EPS growth in 2019. Another factor we must take into account is that this is only an estimate of future earnings. While they are made by highly intelligent analysts, these calculations are still trying to predict an uncertain future. Heading into Q1, there was a consensus forecast for earnings to fall by –4%, but they only dropped by –0.4% when companies actually announced their results. We can see a definite negative trend in forecast EPS for recent and upcoming quarters in the chart below, followed by a slight jump when companies begin to report actual EPS (lines Q4 2018 and Q1 2019). This is not unusual, and as the chart shows the S&P 500 index has made significant gains during this downward period.