Investors Brace For Rough Q2 Earnings

Despite that fact that stocks are reaching near record highs, 77 percent of companies that have issued pre-announcements ahead of earnings reports said profits will be under Wall Street expectations, according to CNBC. Analysts have already forecasted a decline for the first three quarters of 2019, and companies are now joining the chorus of dissent. 

FactSet reported that this is going to be the second-worst quarter since the organization started compiling in 2006, and that two highly tariff-sensitive sectors, tech and healthcare, will take the biggest hits. 

This news comes amid the Dow Jones Industrial Average of blue chip stocks reporting the best June since 1938, which has many analysts worried that a rally won’t last much longer. S&P earnings have been projected to drop 2.6 percent from this time last year, which had the best June since 1955. 

“The harsh reality is data is going to impact sentiment,” said Michael Yoshikami, founder of Destination Wealth Management. “I don’t think it’s something that can be ignored. Even though markets are at all-time highs, the economy is definitely slowing.”

Semiconductors and related equipment, along with other tariff-affected goods like healthcare equipment companies and life science tools, have seen the biggest number of negative announcements. President Donald Trump specifically targeted technology with $250 billion worth of tariffs on Chinese products. Also, steel and aluminum tariffs are directly affecting the healthcare industry, with about $1.8 billion of medical imports affected.

Tara O’Neill Hayes, the deputy director of healthcare policy for the American Action Forum, said the impact of the tariffs to the industry will be about $400 million. There’s also regulatory obstacles ahead, with the government considering the limitation of how much pharmaceutical companies can charge for drugs. 

“Stocks are priced for perfection. You haven’t seen too much suffering yet, but it’s kind of incipient. It’s creeping into the numbers little by little,” said Mitchell Goldberg, president of ClientFirst Strategy. “When stocks are priced for perfection, even little things become insurmountable.”