Conclusion
Earnings are in a bit of a lull. Slower growth amid trade uncertainty and tariffs will likely wipe out most of the earnings growth we might have had, and second-quarter earnings will probably be only marginally positive when all results are in.
Nonetheless, we think fundamentals of the economy, including fiscal stimulus put in place over the past two years, support improving earnings growth later this year. We think the current macroeconomic environment has mid-single-digit earnings growth power. But for now, tariffs on Chinese goods are hurting U.S. company profit margins. Meanwhile, trade uncertainty has weighed on business confidence and hampered capital investment, which limits revenue growth opportunities for corporate America.
Until we get more clarity on trade, earnings are unlikely to grow much. We think we will get some of that clarity over the next few months, which supports our belief that consensus estimates for S&P 500 EPS may be too low.
John Lynch is the chief investment strategist at LPL Financial.