As a Bumper Earnings Season Wraps Up, Outlook Sours

CEOs have just enjoyed their strongest quarterly earnings season in five years, as the economy continues on its long and winding recovery from the financial crisis.

Storm clouds, however, could be on the horizon, as policy uncertainty in Washington keeps investment at bay and traders warn of a possible market correction.

Companies in the S&P 500 index boosted first-quarter profits by an average of around 14% compared to the same period a year earlier, according to separate analysis by Zacks Research and FactSet. The estimates came after around 98% of the index’s total membership had tabled figures.

There were many pleasant surprises, with more than 70% of CEOs handing down better-than-expected earnings. Outlook statements, however, were a little less rosy: FactSet said 73 companies issued distinctly negative guidance for the second quarter, while 36 issued distinctly positive guidance.

“I’d say the second quarter is going to be disappointing in terms of earnings and growth.”

The head of the world’s biggest fund manager is among the more vocal market bears doing the rounds.

At a conference in New York yesterday, BlackRock CEO Larry Fink warned of a more subdued second-quarter earnings season, while predicting that European economic growth will outpace the U.S.

“I’d say the second quarter is going to be disappointing in terms of earnings and growth,” Fink said. “It’d tell me markets are probably fully priced at this moment.”

Growth expectations are being hampered by ongoing intrigue around the Trump administration’s relations with Russia—a sideshow that is threatening to distract the president from his pro-growth agenda and make it more difficult to muster support for tax reform in Congress.

Most recent CEO surveys, however, indicate the majority of managers remain relatively upbeat because the administration at least has ideas that they support.

“Depending on the success of the Trump agenda, [it] will probably determine the course of the equity market for the remainder of the year,” Fink said.