3. Original: Earnings fall short of expectations, partially due to rising wage rates.
Update: Earnings collapse, but rise smartly by the fourth quarter.
Going into 2020, we thought earnings expectations for 2020 were too high. Expectations have since collapsed, although obviously not for the original reasons we anticipated. At the start of the year, the bottom-up consensus for S&P 500 earnings per share was $177, but has since dropped to $124.2 Although second quarter earnings results are going to be abysmal, we expect a recovery by the end of the year.
4. Stocks, bonds and cash all return less than 5% for only the fourth time in 25 years.
This is one of the three predictions we left unchanged. Markets experienced this phenomenon in 2005, 2015 and 2018.1 At the mid-point of 2020, stocks have performed better than we would have expected three months ago, but are still in negative territory for the year. With the Fed anchoring short-term rates at zero, cash returns have been miniscule. Bonds are ahead of where we thought they would be (The Bloomberg Barclays U.S. Aggregate Bond Index is up 6.1%),1but that could change if longer-term yields rise.
