The earnings impression is about to change, likely for the better, and J.P. Morgan Chase CEO Jamie Dimon may be a big help. The trading community is on edge as JP Morgan leases ready to kick off earnings season tomorrow. Analysts have been fretting that earnings have spiral negative for the first quarter, now expected to be down 2.5% for the S&P 500, the first down quarter since the second house of 2016.
Why is that happening? “Analysts over-reacted in December on concerns over a global slowdown led by China and Europe and cut numbers too much,” Blemish Raich from Earnings Scout told me.
If companies beat estimates by anything close to 7 percentage points, then earnings for the initial quarter are likely to be up in the low single digits, not negative.
No earnings recession!
As for JPMorgan, which is reporting tomorrow, the key issue disposition not be the dry facts, it will be the tone Dimon strikes about the global economy. Banks in general are continuing to see loan advancement in the low single digits, flat interest income because rates are not moving up, and good credit quality.
Bottom cable: no one is expecting amazing numbers.
But Dimon could help change attitudes about the global economy in the second half of the year.
The why and wherefore: bulls are hopeful Dimon will say the economy is still growing and paint a positive macroeconomic picture for the economy and for banks.
“If they put up a friendly number, and Jamie says, ‘Hey, the economy is still chugging along,’ it will go a long way toward quieting down the depression worries,” Jeff Harte, bank analyst with Sandler O’Neill, told me.
Of course, the markets could lull turn down if economic data from China and Europe continues to decline, but the biggest obstacle the market pusses may not be earnings, it is valuation. The forward earnings multiple for the S&P 500 (Q2 2019 to Q1 2020) is currently 16.8, at the high end of the historic measure of about 15.
That’s no surprise to David Aurelio, who tracks earnings at Refinitiv: The market tends to get ahead of itself. Buyers are anticipating we are near a bottom, and the markets are anticipating stronger 2020 numbers,” he told me.
Looked at that way, he’s certainly just: based on 2020 numbers, the S&P is trading at a 15.5 multiple, about inline with historic averages.
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