Optimism that the United States and China will soon reach a trade deal has helpe...
NEW YORK - Optimism that the United States and China will soon reach a trade deal has helped propel stocks close to new highs, but the decisive factor in whether the bull market runs much further may be this year’s corporate earnings.
The S&P 500 has risen 14.8% so far this year and is now just 1.8% below its record closing high of 2,930.75 on Sept. 20 and even closer to the 2,900 median year-end forecast from market strategists polled by Reuters in February. While earnings are expected to fall 2.5% year-over-year in the first quarter and register tepid growth in the second and third quarters, according to Refinitiv, consensus estimates have them rebounding in the fourth quarter, rising 8.9%.
“Almost all the earnings growth is backloaded into the end of the year,” said Emily Roland, head of capital markets research at John Hancock Investments in Boston. “We’re going to need a positive surprise in earnings to keep the engine running for strong market returns.” “With a more benign interest-rate outlook, we could go back to more positive earnings projections,” he said. “It’s a fairly major development.”While many investors believe a U.S. trade agreement with China would provide only a limited boost to equities at this point, the effects of such a deal could play a significant role in earnings outlooks for the second half of the year.
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