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Market Update: 07-15-19

Q2 EARNINGS: MUDDLING THROUGH

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

Second quarter earnings season gets rolling this week. Consensus estimates are calling for a modest year-over-year decline in S&P 500 Index earnings amid the downshift in U.S. and international economic growth, tariffs, and ongoing trade tensions. Quarterly earnings almost always beat quarter-end consensus estimates — this quarter will likely be the 41st in a row to do that — so we expect a slight year-over-year gain that would continue the stretch of consecutive quarterly earnings gains since the 2016 earnings recession [Figure 1]. Nearly60 companies will report this week (July 15 – 19). Here we preview second-quarter earnings season and share our outlook for profits in the second half of 2019.

LOW BAR AGAIN

Seventy-seven percent of companies issuing guidance for the second quarter have lowered estimates, which is above the 5-year average of 70%, according to FactSet data, lowering the bar so to speak. However, the overall consensus S&P 500 earnings estimate has fallen only by a below-average 2.6 percentage points over the past three months, much less than...

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