Corporate earnings are about to do something they haven’t done since the 2008 financial crisis: Turn negative.
According to PNC Financial’s Amanda Agati, the coronavirus fallout could dramatically hurt companies through the second quarter.
“Q1 expectations are in negative territory at about 1.5%. It looks like Q2 will be down about 1%,” the firm’s chief investment strategist told CNBC’s “Trading Nation” on Friday. “Q2 is probably going to be the better gauge for where we go from here.”
She’s more worried about the second quarter because the coronavirus showed up so late in the first quarter.
“I don’t think Q1 earnings will be the right guide,” said Agati.
First quarter earnings season is 16 trading days away. JPMorgan Chase kicks it off on Tuesday, April 14.
Wall Street consensus expected S&P 500 earnings to grow by 10% going into 2020, according to Agati. Now, it’s about half. She expects earnings growth will keep falling.
Agati, who has $154 billion in assets under management, sees valuations dropping further, too. Between the S&P 500’s all-time highs in February and now, she said the index’s forward P/E multiples have dropped from about 19 times earnings to just under 14 times.
“We’re not viewing valuation as a very good gauge or timing tool for relative attractiveness,” she added. “It’s all going to come down to the earnings backdrop.”
The Dow just saw its worst week since October 2008, plunging more than 17%. It’s down more than 10% three out of the last four weeks. The average daily point range over the past two weeks is almost 1,500 points.
The S&P 500 has plummeted 32% since its all-time high hit last month. Plus, it’s now off 22% month to date. The S&P 500 is on track for its worst monthly performance since May 1940.
“The technicals have really been on the front end of this market correction,” she noted.
Agati contends the current situation is not a financial crisis — rather, it’s a global health crisis. Her thesis is it’s a near-term problem.
But, when her clients ask her if she sees any good buys in the stock market, Agati’s answer is no.
“We have seen tremendous multiple contraction over a very short span of time,” Agati said. “We are not advising investors to start making widespread changes. We need to see the VIX settle down. That is certainly a reflector of fear and uncertainty in the market, and frankly, a lack of price discovery.”
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