Morgan Stanley: “The Earnings Recession Is Here”

Monday, February 11, 2019
By Paul Martin

by Tyler Durden
Mon, 02/11/2019

One week ago, when looking at the dramatic collapse in consensus Q1 EPS estimates, we noted that the “profit party” is over and the days of near record earnings growth are about to end with a bang as a result of the recent barrage in profit warnings and negative preannouncements, first and foremost starting with Apple, which issued a shocking guidance cut one month ago for the first time since 2001. As a result, analysts have slashed their S&P500 earnings estimates for the first quarter, and the Q1 bottom-up EPS estimate dropped by 4.1% (to $38.55 from $40.21) during this period.

Strikingly, the first quarter marked the largest decline in the bottom-up EPS estimate during the first month of a quarter since Q1 2016 (-5.5%). At the sector level, all eleven sectors recorded a decline in their bottom-up EPS estimate during the first month of the quarter, led by the Energy (-22.5%) and Information Technology (-7.3%) sectors. Overall, seven sectors recorded a larger decrease in their bottom-up EPS estimate relative to their 5-year average and their 10-year average for the first month of a quarter.

What is even more stunning is just how fast Q1 earnings have been slashed lower, with the S&P expected to post a 3.3% growth as recently as Dec 31, a number which is now down to -0.8%, as consensus for the first time expects Q1 EPS to post an annual decline due to downward revisions to EPS estimates during the month.

If analysts are correct, and the index does report an actual decline in earnings for the first quarter, it will mark the first year-over-year decline in earnings since Q2 2016 (-3.1%).

Fast forward to today, when one day after Morgan Stanley’s Michael Wilson noted that “Earnings Revisions Have Been Some Of The Worst We’ve Ever Observed”, the chief equity strategist is out with his latest dire proclamation, namely that the “Earnings Recession Is Here.”

The Rest…HERE

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