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Market Update: 04-08-19

Q1 EARNINGS PREVIEW LIGHT AT THE END OF THE TUNNEL

John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial

First quarter earnings season kicks off this week and the bar seems low. Consensus estimates for first quarter earnings season are calling for a slight yearover- year decline in S&P 500 Index earnings amid the economic soft patch at the start of the year. Marking the one-year anniversary of the tax reform earnings boost, in the first quarter of 2018, has made the annual comparison more difficult, as shown in Figure 1. We expect roughly flat earnings for the quarter, but the streak of seven straight quarters of earnings growth could come to an end. Here we preview the upcoming earnings season, highlight some key themes, and share some thoughts on the 2019 corporate profit outlook.

Here are some of the key themes for first quarter earnings season: 1. The low bar is likely to be cleared. Quarterly earnings almost always beat quarter-end consensus estimates—this quarter will likely be the 40th in a row. However, given the headwinds of weaker global growth and trade uncertainty, which led to above-average cuts to estimates, the typical 3–5% upside surprise may not be a slam dunk in the minds of some market watchers. We believe companies took advantage of the many excuses...

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