So while earnings are still poised to rise 2%, and some weakening in long-term estimates is natural (though not usually this big), it’s fair to say Trump’s overseas entanglements have disappointed those on Wall Street hoping to see another year of bumper growth.
The industries that have weighed on S&P 500 profit estimates the most have been those entangled in the U.S.-China trade war. Of all 11 major equity sectors, energy, materials, information technology, and industrial companies have seen the worst deterioration in earnings forecasts for 2019.
Ten months into 2018, analysts thought profits for the industrial sector would increase 12.5% in 2019. Now, they see a decline of half a percentage point. At that same point last year, Wall Street was forecasting that tech earnings would expand by 14% in 2019. Now, analysts estimate they’ll fall more than 2%, with the change driven by downgrades for trade war-sensitive semiconductor and hardware stocks. Meanwhile, software and services stocks, seen as more insulated from the U.S.-China spat, have maintained forecasts for profit growth above 16%.
Stacy Rasgon, a senior analyst at Bernstein, points to uncertainty caused by the trade war for some of the weakness in chipmaker views. The direct impact is relatively small given the amount of trade in semiconductors between the two nations, he said, but there’s hope that if a trade deal materializes, next year may be better. “You’re starting to price some of that hope in, though the indirect impact is potentially much bigger and very hard to size.”
The S&P 500 gained 1.2% this week, snapping a streak of losses, after the U.S. and China were said to have reached a partial agreement that would form a truce in the trade war.
But even in the face of the trade war, looking back, there’s no denying that corporate profits have surged since President Trump took office. While the last few years have seen twists and turns, and things could change as the election whips up, as of now the S&P 500 has gained 40% since the 2016 election, and the Dow Jones Industrial Average has added 8,670 points.
“There’s a lot to tout in this economy and stock markets are still strong,” said Nela Richardson, investment strategist at Edward Jones. “If things were to persist, that’s a great legacy to stand on.”
This article provided by Bloomberg News.