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Contrary to what you may have read elsewhere, with virtually all S&P 500 companies having reported Q2 results, earnings growth is tracking at a negative 75 bps according to Morgan Stanley, a lackluster growth rate which further supports the bank's call for an earnings recession which it defines as two or more quarters of flat or negative growth, in 2019.
Negative earnings growth within the index is also broad: 6 of 11 sectors are seeing negative growth this quarter, with Materials, Industrials, and Tech faring the worst. Health Care and Financials are experiencing the strongest growth but it is only in the single digits, and with the yield curve inverting it is only a matter of time before US banks slide into earnings recession as well. Meanwhile, the ever bearish Morgan Stanley is gearing up for similar results in the back half of the year "as companies reckon with tariffs, labor cost pressure, eroding margins, and excess inventory."
Sales - Growth - Quarter - S - P
Meanwhile, sales growth has also been sluggish this quarter if positive, with S&P growth up 3.9% year over year. This is a far cry from the robust sales growth we saw throughout 2017 and 2018. That said, revenue growth is in negative territory in 4 sectors. The sectors seeing the strongest revenue growth are Communication Services and Health Care, however the rising margin compression suggests that labor and wage costs are now aggressively eating away at the bottom line.
So with earnings now negative for two consecutive quarters - at least as calculated by Morgan Stanley, other banks "surprisingly" still show a modest increase - it is probably not surprising that as has been the story of the year, multiples continued to drive the market, which is up 15% YTD, rather than estimate changes. As we reported at the time, in July, the S&P 500...
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