US stocks at risk as earnings expectations decline

The S&P 500 fell 0.1 percent on Tuesday, one day after hitting a new high.

Nevertheless, Charlie Ripley, senior investment strategist for Allianz Investment Management, noting progress on a trade deal with China, a “supportive Fed” and better-than-expected corporate results, said “we would expect market optimism to continue to improve which is particularly important as we head into the holiday spending season”.

However, UBS lead strategist Francois Trahan falling earnings expectations are a big threat to stocks.

Noting that the consensus year-on-year growth rate in S&P 500 forward earnings has dropped to a 1 percent from a peak of 23 percent in September 2018 he said: “Ultimately, the most vulnerable macro backdrop for equities occurs when forward earnings growth turns negative as LEIs are trending downward (pushing [price-to-earnings] lower).”