Wall Street’s expectations for global corporate profit growth have dimmed significantly, with analysts now forecasting that earnings per share will rise just 6.5 per cent in 2019. That comes as concerns grow over the fading health of the international economic expansion that excited investors just a few months ago.
Back in October the consensus estimate of investment bank analysts was that global EPS would grow 10 per cent in 2019. The downgrade to less than 7 per cent now reflects cuts in forecasts across the US, Europe and the developing world, according to strategists at Citi.
The shift mirrors a pattern of earnings expectations gradually falling through the year that has held through most of the post-crisis era. However, that trend looked like it had ended in 2017-18, when corporate profit growth ended up being faster than anticipated at the start of those years.
This time, however, every major market has seen earnings growth expectations taper over the past three months, according to Citi. By sector, only US utilities and Japanese communications services have seen modest upgrades.
Robert Buckland, Citi’s chief global equities strategist, reckons the consensus is still too optimistic. The US bank’s team of analysts forecast that global EPS growth will slow to just 4 per cent in 2019, a dramatic deceleration from last year’s profit expansion, which is expected to clock in at about 15 per cent.
Nonetheless, Mr Buckland points out that global equity markets can still turn a profit despite glummer forecasts. Stocks have seen positive annual returns even as earnings growth slows, 15 times since 1989.
“Maybe this reflects that investors had already moved to price in weaker EPS before most years start. Indeed, we think that has happened this time round,” Mr Buckland wrote in a recent report. “In addition, we suspect that the market has learnt that analysts are usually too optimistic.”
