Financial safety

Earnings recession is expected to swallow all of 2019 after holiday forecasts disappoint

The holiday season is no longer expected to pull corporate earnings out of a recession that has lasted the entire year.

Earnings in the S&P 500 index SPX, +0.22%  are now projected to decline 1.51% in the fourth quarter from the year before, according to a FactSet computation of analysts’ average forecasts for individual companies. An earnings recession is defined as two quarters or more of consecutive year-over-year declines, and earnings for S&P 500 components dipped in the first two quarters of 2019 and are all but certain to do so again in the third quarter — with nearly 95% of calendar third-quarter reports posted, earnings have dropped 2.34%, the biggest decline so far this year.

The last time profits decreased for four quarters in a row was in the period beginning with the third quarter of 2015, FactSet’s senior earnings analyst John Butters told MarketWatch in an email.

Three-fourths of earnings recessions since World War II have morphed into economic recessions, said CFRA Chief Investment Strategist Sam Stovall, who told MarketWatch that he has been “scratching his head” trying to reconcile analyst pessimism around earnings with continued stock-market rallies.