Wall Street is rocking after some hefty falls for the major indices, but there could be succour in the form of earnings as the Q1 season gets underway on Friday.
Wall Street is rocking after some hefty falls for the major indices, but there could be succour in the form of earnings as the Q1 season gets underway on Friday. Citigroup and Wells Fargo are the first big banks to report their first quarter results.
The question facing investors is whether a strong earnings season can halt the stock market slide. While equities have been hit by worries about a trade war and various tech sector trouble, there is yet hope that Q1 earnings will deliver a fillip as the impact of tax effects and stronger economic growth are felt on bottom lines. Investors may also be optimistic that corporate tax cuts lead to more share buybacks and dividends.
According to Bloomberg, analysts expect first quarter earnings growth of 17% – up from 13% at the start of the year. FactSet says Q1 2018 has seen the biggest increase in the bottom-up EPS estimate during a quarter since it began tracking the numbers in Q2 2002. Corporate earnings may yet come to the rescue of Wall Street.
Worries about runaway inflation were the initial cue for a selloff in equity markets but those fears have since subsided somewhat. Nevertheless, there are clear signs that inflation is picking up after years of lacklustre price growth that confounded economists. The more inflation picks up the quicker the Fed may be tempted to raise interest rates, which has implications for short term funding costs and for the wider equity market.
Last month’s data showed CPI inflation rising to 2.2% on an annual basis in February, compared with 2.1% for January. The more recent PCE inflation gauge showed inflation accelerating in February to its highest level in a year.
More indications about where US monetary policy is headed should come out of the minutes from the last FOMC meeting, which are due to be published on Wednesday. While the Fed hiked rates as expected, the optics were a little less hawkish than expected. Although policymakers raised forecasts for rates in 2019 and 2020, many were left disappointed that the FOMC stuck to its view that three hikes in 2018 would be appropriate. Many had forecast that the Fed give a clear signal that it would raise rates four times this year.
Source: ETX Capital