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Are profits close to peaking?

Here's the good news: Corporate profits for the third quarter should be really strong. Now for some bad news...

Posted: Oct 9, 2018 6:18 PM
Updated: Oct 9, 2018 6:18 PM

Here's the good news: Corporate profits for the third quarter should be really strong. Now for some bad news: It might be all downhill from here.

Analysts are predicting that earnings for the S&P 500 will rise nearly 20% from a year ago. We'll get a better sense of just how well big US companies are doing later this week when Delta (DAL), Walgreens (WBA), JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) report their results and give outlooks for the remainder of the year.

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Investors will be particularly attuned to companies' forecasts. According to estimates from FactSet Research, companies should still post solid earnings for the fourth quarter. Analysts are projecting profit growth of more than 17% from a year ago.

But the combination of rising bond yields, trade tension with China and tougher comparisons to this year could mean that earnings growth in 2019 will slow dramatically. Earnings are expected to grow just a little more than 7% in the first and second quarters of 2019.

Trade tiff with China could hurt profits in 2019

Consumer companies in particular look vulnerable.

Earnings estimates have fallen for struggling Victoria's Secret owner L Brands (LB), Lowe's (LOW), General Motors (GM), Ford (F), tobacco giant Philip Morris (PM) and meat processor Tyson Foods (TSN), noted John Butters, senior analyst with FactSet Research, in a recent report.

That's why investors will have such a focus on companies' guidance as well, in light of the waning benefit from lower corporate tax rates and the potential for a stronger dollar eating into international sales and profits, said Lindsey Bell, investment strategist with CFRA, in a report.

More tariffs kicking in on Chinese goods also could boost on profits next year. Worries about a trade war getting even nastier could lead companies to give ultra-conservative outlooks. Bell expects tariffs will be the most highly discussed topic on upcoming earnings calls.

"Corporate management teams have no incentive to be overly optimistic given the current tariff situation," Bell said.

Still, some analysts think the tariff gloom and doom is overdone. Companies may be able to weather the trade war in the future as they have in the past.

"We think tough tariff talk is more politics than economics and that investors are overestimating the negative side effects for financial markets," noted Jeffrey Cleveland, chief economist of Payden & Rygel, in a report.

Cleveland conceded the global economy may be slowing a bit but it is still expected to keep growing. And he added that investors shouldn't get too worked up about rising bond yields yet. He does not think they will move high enough to slow profit growth.

"Do higher rates spell trouble for markets? Not in our view. Rates are 'rising for the right reasons' (a strong economy). Good economic growth is great for stocks," he wrote. "This economic cycle is not yet nearing its end."

That may be true. But investors will feel a lot better if corporate leaders take a more upbeat tone when they report their results. If they don't, then expect concerns about this latest batch of earnings being as good as it gets to come back with a vengeance.

Minnesota Coronavirus Cases

Data is updated nightly.

Cases: 486434

Reported Deaths: 6575
CountyCasesDeaths
Hennepin1009131586
Ramsey43165803
Dakota36375392
Anoka33335388
Washington22121258
Stearns18752201
St. Louis14822263
Scott13308107
Wright12538116
Olmsted1181788
Sherburne874172
Carver775640
Clay692387
Rice670791
Blue Earth596635
Kandiyohi579674
Crow Wing521282
Chisago499545
Otter Tail483270
Benton447790
Winona418549
Mower405731
Douglas393368
Nobles387247
Goodhue386269
Polk343763
McLeod340049
Beltrami338651
Morrison324747
Itasca313646
Lyon313644
Becker312542
Isanti306756
Steele301511
Carlton300149
Freeborn282623
Pine282016
Nicollet259241
Todd248330
Brown245537
Le Sueur235720
Mille Lacs227947
Cass220424
Waseca209317
Meeker207434
Martin189928
Wabasha18673
Roseau180317
Hubbard160740
Houston157414
Dodge15294
Renville150340
Redwood147027
Fillmore13768
Chippewa136735
Pennington136316
Cottonwood135020
Wadena131020
Faribault123417
Aitkin119033
Watonwan11758
Sibley117310
Rock115914
Kanabec107519
Pipestone101624
Yellow Medicine97617
Murray9488
Jackson93610
Swift87918
Pope8075
Marshall78015
Lake74218
Stevens7418
Clearwater71914
Lac qui Parle68516
Wilkin67411
Koochiching61911
Big Stone5163
Lincoln5092
Grant4918
Norman4788
Unassigned44568
Mahnomen4417
Kittson40921
Red Lake3625
Traverse3075
Lake of the Woods2191
Cook1180

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 335218

Reported Deaths: 5443
CountyCasesDeaths
Polk51785551
Linn19463313
Scott17080210
Black Hawk14924292
Woodbury13778212
Johnson1312174
Dubuque12416194
Dallas1019092
Pottawattamie9828143
Story959345
Warren511674
Clinton500784
Cerro Gordo498882
Webster494487
Sioux479169
Marshall463072
Des Moines427161
Muscatine424191
Buena Vista412237
Wapello4025108
Jasper386266
Plymouth367478
Lee354252
Marion339869
Jones284654
Henry279637
Bremer268754
Carroll266349
Crawford252235
Boone242830
Benton240354
Washington239047
Mahaska215246
Jackson209738
Dickinson202440
Tama202365
Kossuth198055
Delaware185540
Clay183825
Winneshiek182827
Fayette178635
Page177819
Buchanan176929
Wright173831
Hamilton173742
Cedar171523
Hardin169439
Harrison167169
Clayton159854
Butler158831
Mills147920
Floyd147741
Poweshiek147730
Lyon145541
Cherokee145336
Allamakee142347
Madison141918
Iowa139423
Hancock137630
Grundy132030
Winnebago130231
Calhoun129311
Cass128751
Jefferson128334
Appanoose123147
Louisa122341
Mitchell120440
Chickasaw119615
Union118731
Sac118318
Shelby116433
Emmet115040
Humboldt113525
Franklin109019
Guthrie108928
Palo Alto100921
Howard99021
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Clarke94720
Keokuk92029
Monroe89428
Adair81028
Ida81032
Pocahontas80919
Davis76323
Monona76327
Greene72910
Lucas71421
Osceola68215
Worth6667
Taylor64112
Decatur5699
Fremont5599
Van Buren53718
Ringgold50520
Audubon4739
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