UNITED STATES (OBSERVATORY NEWS) — Coronavirus epidemic damage to US company profits is becoming increasingly difficult to predict.
Wall Street strategists are lowering forecasts, as the impact of the virus is not expected to be limited to the first quarter, jeopardizing profit growth in 2020.
Concern over the expected impact of the outbreak intensified last week as the virus, which was first detected in China, spread rapidly to countries such as South Korea, Italy, and Iran, resulting in the S&P 500 showing a record weekly drop since global financial crisis of 2008.
“This will easily extend to the second quarter,” said Peter Ace, president of the Chase Investment Counsel in Charlottesville, Virginia.
“Now not a day goes by without half a dozen companies reporting that they are expecting any negative consequences.”
Citigroup stock strategist Tobias Levkovich predicts a slight drop in company profits in 2020 on an annualized basis, while the impact will be felt in the first half due to production disruptions and travel restrictions.
However, if this triggers a global recession, profits could “fall by almost 25%, and stock markets will show a similar drop,” Levkovich wrote.
On Thursday, Goldman Sachs strategists said they were now expecting zero profit growth for the S&P 500 in 2020. After a weak 2019, many investors hoped that the profit this year would be good enough to support further market growth.
Refinitiv IBES data shows that analysts’ consensus forecast for 2020 is still well above zero. As of Friday, analysts expected profit growth of 7.6% in 2020, compared with 9.7% at the beginning of the year.
In the first quarter, analysts expect profit growth of 2.7% on an annualized basis, while growth on January 1 was projected at 6.3%, according to Refinitiv.
Many investors noted that rapidly changing forecasts for the economy and profits make the virus a longer-term issue.
“This will be an event for the whole year,” said Ace.
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