Coronavirus & S&P 500 Earnings | The Corona Correction | Refinitiv
Roger Hirst: Welcome to the Corona Correction series in association with Refinitiv. I'm your host, Roger Hirst. David Aurelio of Refinitiv covers a wide range of U.S. equity sectors and is well placed to see how they are coping with the Coronavirus outbreak. Q4 2019 had been fairly robust for U.S. corporates, but now they're faced with incredible uncertainty, which has been compounded by the dramatic drop in oil prices and its potential ramifications across the industrial sector in a potential rerun of the profits recession of 2015. Remember, this is coming hot on the heels of 2019, which saw very tepid growth for earnings, even though the backdrop was relatively calm. David Aurelio Now we're coming off of a fourth quarter that had 3.1 percent earnings growth. So coming off of a strong fourth quarter, however, as we go in to the first quarter play 2020, things are becoming a little bit more uncertain. One of the areas where we're starting to see some impact are in technology, where the supply chain disruptions are starting to become areas where there may be cause for uncertainty. So since January 31st, analysts have cut their first quarter 2020 earnings for the S&P500. We've seen their earnings outlook cut by 3.6 percent. This has brought the year over year growth rate for the quarter down to 1.6 percent from 5.4 percent. We've seen areas such as energy come down from an outlook on January 1st of growth expectation for twenty six point seven percent to negative five point three percent as of today. And industrials have fallen from 0.3 percent to negative thirteen point four percent. What we do know is that you will see earnings numbers come down. So I wouldn't be surprised if you started to see expectations for this first quarter earnings growth rate come down to be actually flat, if not negative. Roger Hirst The uncertainty is clearly going to be a recurring theme for global corporates. For some businesses, the focus has been on the failure of the supply chains and the inability to get parts that we normally be sourced in China. However, it's also clear that the disruption has moved well beyond just the supply chain. The move the oil price and other commodities are incredibly deflationary. Whilst a decline in the oil price might be a short term boost for discretionary consumption, it will also lead to a huge fall in CapEx demand, which will filter through to the economy with a multiplier effect. That combination of Coronavirus and lower commodity prices will probably be a powerful double punch that is difficult for markets to withstand without a bout of concerted government accommodation. We'll see you tomorrow with another update.