Corporate Profits Forecasts For Q1 Starting To Dim

The stock markets may have been rallying ever since Donald Trump won the U.S. election, but the outlook for corporate profits in the U.S. is starting to dim, according to a report by The Financial Times.

Citing analysts, The Financial Times reported that analysts are reducing their forecasts with earnings of stocks listed on the S&P 500 index set to increase 9 percent in the first quarter, which is up from 4.9 percent in the fourth quarter of 2016 but lower than the 12.3 percent increase analysts were expecting at the start of 2017. The lower numbers come at a time when stocks are trading at near all-time highs. The Times noted the S&P 500 has increased by more than 6 percent as of Friday’s (March 17) close and is less than 1 percent from hitting its all-time peak of March 1.

Nicholas Colas, chief market strategist at Convergex, told the Times it’s a “normal pattern” for analysts to “start high with [earnings] estimates and move lower,” but that shouldn’t have happened this time around with President Trump engaging in pro-business policies.

“You wouldn’t know that there was an agenda in place to lower corporate taxes and raise infrastructure spending. That is invisible in the numbers,” Colas said in the report. Russ Koesterich, a portfolio manager at BlackRock, said in the report investors may have gotten overly optimistic about Trump and his policies, pointing to health care reform as one example. The ongoing debate over health care will delay other things such as tweaking the corporate tax code, which would help businesses’ bottom lines.

“We’re certainly in a better place than a year ago, but it’s not entirely obvious” that the improvements will be as strong as investors have been betting on, Koesterich said.