And the sectors that could see the biggest earnings hits.
Analysts have been lowering their earnings outlooks for the second half of 2019 this week, with both Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C) reducing their forecasts for 2019 and 2020 earnings for the S&P 500, citing a slowing economy, a larger than expected impact from recent events in the U.S.-China trade war, and possible currency devaluations.
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They also say there’s a chance earnings for the S&P 500 could turn negative this year.
Analysts who look at individual stocks have also been lowering their estimates in those sectors most affected by slowing global growth, including energy, technology, financials, and industrials.
These sectors have been falling hard in the last few weeks, with analysts’ estimates declining right along with them.
For the energy sector, earnings estimates on July 1 were at -13.6%, while this week those estimates are down to -21.8%. Q3 earnings estimates for the tech sector were at -6.4% last month and are now at -7.4%. Financials estimates were at 6.8% in July and are at 4.3% this week, while industrials were at 6% and are now down to just 2%.
Complicating matters, some of the individual stocks in these sectors aren’t tied to tariffs or global trade. As an example, industrial earnings are complicated by Boeing (NYSE: BA) and the ongoing issues with its grounded 737 Max plane. Q3 earnings for Boeing are now expected to fall -38.5% compared to expectations from earlier this year.
And then there’s Amazon (NASDAQ: AMZN), which is hitting the consumer discretionary sector after seeing a substantial reduction in its earnings estimate for the third quarter following its earnings report from July 25.
Earnings expectations for retailers are also being slashed, with estimates for the sector at 8.7% on July 1 compared to -0.2% this week.
“A bunch of the high-end retailers could be in trouble if the Chinese economy really goes in the tank,” said Leigh Drogen at Estimize.
One such high end retailer is Tiffany (NYSE: TIF), which gets roughly 16% of its revenue from Chinese shoppers.
Overall, the big concern among S&P 500 companies are the tariffs imposed during the trade war between the U.S. and China, including the new tariffs President Trump announced last week on $300 billion worth of Chinese goods first set to begin on September 1, then rescheduled for December 15 so as not to impact the holiday shopping season.
“Then there’s simply the tariff issue on our end with price increases that we don’t know if the consumer here can handle,” Drogen said. “Especially come holiday shopping time, a bad time to add 10 to 20 percent extra cost to products.”
John Butters from FactSet noted that nearly one-fourth of all companies in the S&P 500 discussed tariffs on their earnings call for the second quarter, representing a 40% jump in usage of the term on calls compared to the prior quarter.
But looking at the big picture with all the reduced estimates together, 2019 earnings are now beginning to look like they could end the year in negative territory.
“Certain areas have become total no-gos,” FTSE Russell managing director of global markets research, Alec Young, said. “Energy and financials are a total bust. Put your money there if you want to see it evaporate quickly. The global markets are weakening, and the trade truce didn’t last more than two months. … Until we get an end to tariffs, there is a ceiling on the market.”
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