Forget About 6% Earnings Growth For 2019–How About 1%?

I wrote about the possibility of an earnings recession in 2019. And I noted that the Wall Street analyst consensus for the year was pointing toward 6% growth in earnings for the companies in the Standard & Poor’s 500, after a negative growth rate for the first quarter of the year. 6%, I wrote, wasn’t much of a margin since analysts often cut their estimates as the year advances.

Well, that 6% projection took another blow on Monday. Morgan Stanley’s Mike Wilson, the company’s chief U.S. equity strategist, cut his projection for earnings growth in 2019 to a bare 1%. Wilson had been below consensus with a projection of 4.3% growth before this trim. But he now definitely sees two consecutive quarters of negative earnings growth, which qualifies as an earnings recession.

Wilson hasn’t given up on U.S. stocks for the year, however. He sees the S&P 500 ending 2019 at 2,750 as lower interest rates support stocks. The index closed today, February 11, at 2709.

Hoping for a 41 point gain for the year probably doesn’t set your heart aflutter. But in case you need to be brought down to earth from the excitement of that gain, Morgan Stanley does also note that earnings recessions like this in the past have led to wider swings stock prices. In other words minimal price gains and increased price swings.