Earnings Contract at More Firms In the S&P -- WSJ
December 05 2019 - 3:02AM
Dow Jones News
By Akane Otani
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (December 5, 2019).
Investors who have shrugged off tepid earnings growth this year
have leaned on the argument that the majority of S&P 500
companies have wound up beating analysts' expectations. Morgan
Stanley's wealth-management unit isn't sold on that argument.
The money manager found in an analysis of earnings that more
than a third of S&P 500 companies have posted a year-over-year
decline in earnings in 2019. The last times the share of companies
posting contracting earnings was that high: 2009, 2008 and 2002,
all periods when the broader economy, plus the stock market, were
in decline.
Will stocks buck the trend this time around? Morgan Stanley
Wealth Management isn't betting on it.
Both economic and earnings growth have "slowed materially this
year and are apt to weigh on U.S. stocks," Lisa Shalett, chief
investment officer of Morgan Stanley Wealth Management, wrote in a
note Monday.
The Russell 2000, which tracks shares of smaller, more
domestically focused companies, has continued to trail behind the
S&P 500 this year -- potentially pointing to a lack of
enthusiasm among investors about U.S. growth. And while Morgan
Stanley Wealth Management believes populist movements around the
world will help drive fiscal policy that will spur growth in places
like Europe and Japan, it isn't as optimistic that the U.S. will
get such a boost in 2020.
Given the dim outlook, it isn't surprising that the money
manager has one of the lowest year-end targets on Wall Street.
Other firms, including BMO Capital Markets, Citigroup and Bank of
America, are expecting U.S. stocks will churn out gains in the
single-digit percentage range next year. But Morgan Stanley Wealth
Management sees the S&P 500 potentially ending 2020 at 3000,
below where it is currently trading, and ending this year at
2750.
For that to happen, the S&P 500 would have to fall 12% from
Wednesday's closing level between now and year-end -- something
that seems unlikely at the moment, given the stock market's
historical performance in December.
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
December 05, 2019 02:47 ET (07:47 GMT)
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