Financial markets have signaled a darker outlook for US companies' profits. and economic activity after Apple Inc. reduced fourth quarter revenue forecast, citing smaller iPhone sales in China.
The S & P 500 declined 2.5% on Thursday, making the first two trading days in 2019 the worst start for US stocks. since 2000. The bond market also reflects a change in sentiment towards an economic slowdown this year.
"Everything points to a general weakening of corporate earnings growth, which greatly increases among investors and contributes to stock market problems," said Mark Zandi, chief economist at Moody's Analytics.
Investors also rethink their opinion on interest rates. The yield on the US dollar for the two years of the Treasury fell below 2.4%, reaching parity with the effective rate of federal funding for the first time in 2008. The market measure suggests that investors believe the US Federal Reserve will not be able to continue to tighten policy as its forecast suggests, after raising the benchmark interest rate four times in 2018.
The US Treasury's 10-year bond yield fell to 2.56%, reaching the lowest level in one year.
"At its meeting in December, the Fed stressed that its monetary policy was based on a multitude of indicators, not just stock market movements, but since then, economic indicators seem to have confirmed market forecasts for a slowdown in economic growth, leaving the Fed less free to raise rates, "said Jocelyn Paquet, an economist at Financial Bank.
Apple, which last year became the first $ 1 trillion public company, declined 9.9%, recording a total of $ 74 billion and declining overall from October to 38 7%. Thursday's decline, Apple's biggest one-year decline, has dragged other actions down.
Wednesday after markets closed, California's technology company said its first-quarter earnings would be $ 84 billion, down from a previous forecast of $ 89 billion to $ 93 billion, adding to the list American multinational companies that have diminished their expectations.
Delta Air Lines Inc. said on Thursday that fourth-quarter unit revenue (or median mileage per seat) would increase by 3% over the previous year, down from a previous 3.5% forecast. Delta shares fell 8.9%, and weighed other airlines.
FedEx Corp. has lowered its December profit forecast, indicating the impact of trade tensions between China and the United States. Starbucks Corp. said recently that sales growth in China could slow down to just 1%, with sales rising elsewhere. And Tiffany & Co said Chinese consumers have cut overseas spending.
These downward adjustments are hardly catastrophic, but I support the idea that US profits growth. slows down, companies are preparing to get financial results over the next few weeks. As profit growth slows down, stock assessments tend to decline.
According to Bloomberg's latest estimates, analysts expect the S & P 500's fourth-quarter profit to grow 13.4% over the past year, but this is reduced by expectations of 18% profit growth in October. Similarly, analysts expect first-quarter profit to grow by only 4.3%, down from a 7.5% forecast in October.
David Rosenberg, Chief Economist and Strategist of Gluskin Sheff + Associates, noted that the dark prospect of earnings suggests that inventory valuations may drop sharply. "Even a flat winning scenario can lead this market to 1,800 on the S & P 500, or even lower," Mr Rosenberg said in a note, which means that the index could fall by 26.5% currently 2,448.
The latest US economic news they did not lighten the prospect and suggested that the economic challenges are not limited to China. The ISM manufacturing index fell to 54.1 in December, down from 59.3, marking the largest monthly decline in a decade.
"Manufacturing can only account for a small part of the global economy, but with clear evidence that weaker global growth is beginning to pick up and financial conditions continue to worsen, there is a risk that the industry downturn may mark the beginning a worse recession in the economy as a whole, "said Andrew Hunter, economist senior economist at Capital Economics, in a note.
Canadian bond yields also predict that the Bank of Canada will avoid raising rates in the shortest possible time. The yield on the five-year government bonds in Canada, which has fixed mortgage rates, fell below 1.76%. That marked the lowest yield in more than a year and dropped from 2.5 percent in October when the economic outlook was considerably more sunny.