“Corporate earnings have surged recently, helping to push the Standard & Poor’s 500 Index up 30 percent from its October lows.
But stock analysts predict that earnings growth is about to plummet.
The Standard & Poor’s Capital IQ survey projects that profits increased 0.93 percent in the first quarter from a year earlier, The New York Times reports. That’s a 95 percent plunge from the 19.68 percent growth rate seen in the first quarter of 2011.
“It is the lowest quarter of growth we have seen since the third quarter of 2009,” Christine Short, senior manager for S&P Global Markets Intelligence, tells The Times.
Surveys from Thomson Reuters and FactSet show similar results.
So why is profit growth collapsing? First, companies have run out of ways to profit from cutbacks. Second, the impact of Europe’s debt crisis continues. And third, so does the impact of slowing global economic growth.
The effect on stocks may not be pretty. Barclays Capital expects the S&P 500 to fall a bit less than 10 percent if companies’ profit guidance doesn’t meet analysts’ expectations.
Another factor that could weigh on stocks is worry about the U.S. economy following Friday’s news that payrolls gained only 120,000 in March.
“What it calls into question and what the debate will be about is, once again, what is the pace of the recovery?” Mark Freeman, chief investment officer at Westwood Holdings Group, tells Bloomberg.”
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