That was a strong response form the bulls in the cash session yesterday as they clawed their way back above SPX 2700.
However, S&P Futures have again sunk below 2700, it will be up to the bears to put some more oomph into the selling or else the bulls can spring back with a green daily candle.
Despite today's stumbles, it has still been a roaring start to the year for U.S. stocks: The Dow Jones Industrial Average and S&P 500 are each up almost 8% since Dec. 31, while the Nasdaq Composite is up closer to 10%. But the way that 2019 earnings estimates have been going – down – it might be a front-loaded year. Barron's' cover storythis past weekend laid out how to invest in such an environment, ominously referred to as an "earnings recession."
Today, over at Barrons.com, my colleague Daren Fonda wrote aboutanother trend this earnings season:
More than 73% of S&P 500 companies have reported fourth-quarter results. Of those, 60% beat forecasts for earnings per share, 53% beat on sales, and 37% edged estimates on both. Those beat rates are about average since 2000, but they are the lowest levels at this point of an earnings season in four years.
And that's on a lower bar: Consensus 2019 earnings estimates for the S&P 500 now call for 5% growth, versus 7% as recently as the beginning of January.
Factors driving the downward revisions include slowing global economic growth expectations, a strong U.S. dollar, and gloomy forecasts from China – a factor cited by about 10% of S&P 500 companies on their fourth-quarter conference calls.
If there is a bright side to this, it is that Wall Street appears to be in a forgiving mood. Companies that beat forecasts are seeing their stocks rise by an average of 2.5% the next day, the biggest bump since the third quarter of 2015, Hall and Subramanian write. Earnings misses, meanwhile, are being punished by a relatively minor 1.3% the next day. In the industrials, tech, and discretionary sectors, companies that missed estimates actually outperformed the following day. That may be a sign that investors figure things could have been a lot worse.
One way to play all this: Stick with sectors that have the highest proportions of companies beating estimates. Industrials and health care had the most widespread beats on both profits and sales in the fourth quarter, according to Hall and Subramanian. The S&P 500 health care sector has gained just 4.7% this year. But industrials are outperforming, up 14.1%.
For more on why the era of big earnings beats may be coming to an end and how investors should prepare, check out Daren's report.
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Oil refiner Phillips 66, tire maker Goodyear Tire & Rubber, toy company Hasbro, and nuclear power giant Exelon all report earnings tomorrow morning.
It's another quiet day on the U.S. economic data front tomorrow. Elsewhere, Canada's employment report for January is out and the Bank of Russia releases a policy statement.