A peek at peak earnings

●Corporate profits were near record levels in both 2017 and 2018

●Worries that corporate profits may have maxed out have weighed on stocks


It won’t be long before the first earnings of the new year start rolling in (the Q4 2018 performance numbers, that is), which will likely reignite a discussion that started gaining traction in the last few months of 2018: Have earnings peaked?

2017 and 2018 were both banner years for US corporate earnings, which were widely credited with an assist in 2017’s bull run in stocks. Still-strong earnings numbers didn’t keep the market humming to the upside throughout 2018, and although bearish factors such as trade wars, political dysfunction, interest rates—and plain-old price exhaustion—have to be given proper credit, one hypothesis that emerged last year was that after such a great run of corporate profitability, things were about as good as they were going to get on that front.

Corporate profits: Q1 1999–Q3 2018

Source: Source: US. Bureau of Economic Analysis (www.bea.gov)

One argument is that last year’s tax cuts (and deregulatory moves) were one-offs. Because they won’t be able to provide a similar boost this year, future earnings numbers are unlikely to wow as much as 2017’s and 2018’s did, even if they’re still good.

In a stock market perceived by many to be a bit of a hot mess, big earnings misses—especially by high-profile companies, and especially early in the upcoming reporting season—could trigger volatile market moves.

But if those numbers surprise to the upside…

Stay on top of that reporting calendar!


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1 CNBC.com. Corporate profits are reaching their peak and history shows that’s bad news for the stock market. 11/5/18.