US Q1 earnings could drop to lowest point in three years

The US earnings season has been off to a rocky start. Wall Street is lowering its estimates for first quarter(Q1) corporate earnings to its lowest level since Q2 2016.

Why is Wall Street lowering its expectations for Q1 earnings?

For Q1 earnings, Wall Street is projecting a 0.8% drop, much less than the predicted 3.3% growth. Financial experts diminished their forecasts after a host a of factors affected earnings.

The current crop of modest earnings reports and weak guidance from corporations like Apple and Amazon have led to a decrease in Wall Street expectations.

Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, noted that the pressure on corporations’ margins caused a lessening in earnings estimates. He believes that the US-China trade war and an surge in labour costs are reducing earnings estimates.

‘Margin deterioration is going to be a big theme this year. What is driving that deterioration is higher labour costs and the friction created by the trade war, which disrupts supply chains’, said Gokhman.

What’s next for US earnings?

US earnings season has been mixed so far, but many financial experts like, Ed Keon, portfolio manager and chief investment at QMA, wants to exercise patience on companies' earnings.

‘We're not making big bets for or against stocks and bonds. We're trying to see if this is a garden variety slowdown or if it's the beginning of something worse. I don't think any of us knows the answer to that now,’ said Keon.

Nicholas Colas, co-founder of DataTrek, is optimistic that the market will rise on the strength of a dovish Fed and that future reports from companies like Google will bring better news for the US markets.

‘The market is trading on the hope that this is a temporary issue and that we start to see some growth in the second quarter and that the back half of the year should be a whole lot better,'said Colas.