Earnings Season Could Test Bull Market in Stocks

By WSJ City

The stock market's strongest run in more than two decades is about to be tested: a looming pullback in corporate profit growth means major indexes could be hit by a fresh bout of volatility.

KEY FACTS

--- Dozens of companies have slashed their profit forecasts for the first quarter.

--- Among them: Walgreens Boots Alliance, Apple., FedEx and 3M.

--- Valuations are close to their highest level in half a year as earnings season begins.

--- Investors will be looking to see if slower profit growth is a blip, or evidence of a slowdown.

--- An accommodative Fed has so far soothed investors, stoking appetite for risky assets.

--- Money managers are increasingly predicting a rate cut: that could further boost stocks.

"Investors are rightly encouraged by the Fed's reactions, but the Fed easing on policy isn't going to alleviate margin pressures. There's a big risk to profit margins and quality of earnings we see this month and it's definitely not priced into the market."

Mike Wilson, Chief equity strategist, Morgan Stanley

Why This Matters

Companies that miss earnings estimates could respond by cutting spending on capital improvements and labour, further strangling economic growth and reigniting a stock-market selloff, said Morgan Stanley's Wilson. He added that earnings misses tend to force companies to rethink their priorities.

Slower profit growth will likely surprise few investors, as companies had been telegraphing them since January. But how they forecast their performance in subsequent quarters could spark a new bout of volatility, said Russ Koesterich, a portfolio manager at BlackRock's global allocation team.

A fuller story is available on WSJ.com

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(END) Dow Jones Newswires

April 08, 2019 10:09 ET (14:09 GMT)

Walgreens Boots Alliance (NASDAQ:WBA)
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