Very worrying signals when a moderate slowdown leads the central bank to change 180 degrees its normalization path.

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Wall Street’s Incredible Shrinking Earnings Outlook

Wall Street’s predictions for this quarter’s earnings are shrinking fast. That’s a bellwether for rolling downgrades as the year wears on––and a signal that the market’s current bull run could turn into a bear stampede.

On Friday, FactSet, the data analytics firm that compiles consensus market forecasts, issued a report noting that equity analysts now expect S&P 500 earnings-per-share to drop by 2.2% in the quarter ending March 30, compared with the same period in 2018. That’s a 5.4 point negative swing from the outlook on December 31, when the banks projected EPS gains of 3.2%. For the entire year, Wall Street has cut its estimates from 7.2% to 4.8%. But even those subdued expectations are suspect: The analysts are counting on 9.1% growth in Q4 to compensate for virtually flat profits for the first 9 months. After that, the profit boom is supposed to resume, with EPS jumping 11.4% in 2020––a number that’s actually higher than the forecast at year end.

Wall Street is usually overly, even wildly optimistic in charting the S&P members’ future fortunes, and the numbers almost always drop as the earnings announcements grow closer. But this time, the downward adjustments are coming faster, and in bigger increments, than usual. Look for the trend to continue in the coming months. Smart investors should examine where revenues and margins are going, and do their own reality check before the analysts post the inevitable parade of downgrades. The fundamentals make it virtually impossible for Q4 to bail out 2019, or for profits from the start of 2019 to the end of 2020 to rise the projected 16.7% over the record-setting performance in 2018 (that this year’s forecast of 4.8%, plus the 11.4% projected for 2020).

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