After a strong three quarters in 2018, investors are expecting weaker fourth quarter earnings by comparison, causing the major indexes to fall early on Monday.
The Dow Jones Industrial Average fell over 100 points, while the S&P 500 lost 0.5 percent and Nasdaq Composite fell 0.9 percent.
Corporate earnings in the first three quarters of 2018 grew by 25 percent, but according to according to Lindsey Bell, a strategist at CFRA Research, fourth quarter earnings, earnings grew by just half of that.
Citigroup, one of the large banks reporting earnings this week, kicked off calendar fourth-quarter earnings season by reporting stronger-than-expected earnings. Citigroup reported $1.61 in profit per share, besting Wall Street expectations of $1.55 per share.
“A volatile fourth quarter impacted some of our market-sensitive businesses,” said CEO Michael Corbat.
“The real economy is doing well,” said Citigroup Chief Financial Officer John Gerspach. “Then you’ve got what I’ll call the financial economy…I think there’s a good deal of concern around the world as to how do we exit this period of quantitative easing,” he said, referring to the Federal Reserve’s move to raise rates and reduce the availability of easy credit.
“What remains to be seen is whether the financial economy has an impact on the real economy in 2019,” Gerspach added.
January Rebound Sustainable?
Thus far in January, the markets have rebounded off a December’s doldrums, but some analysts don’t think it’s sustainable moving forward.
“We are chalking up the S&P 500’s YTD gain of 3.6% primarily to the cessation of tax loss selling in the New Year,” said DataTrek Research co-founder Nicholas Colas. “That list of the biggest S&P 500 losers in 2018 we published last month is up an average of 9.5% YTD, a data point which supports this idea.”
“From now on, US stocks will have to earn further gains. Earnings season kicks off this week, the market’s first challenge. US/China trade will likely have to wait for Davos, which is 9 days away,” Colas added.
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