It's now up to corporate America to reveal whether the U.S. economy simply hit a soft patch this winter or is on the verge of falling into an even deeper rut.
Earnings from a broad range of industries, like financials, technology, transp
ortation and consumer products will be out in the coming week as the first-quarter earnings are posted. According to Brian Wu of KCI Asia in Hong Kong, “Earnings are expected to decline 2-3 percent in the first negative quarter in three years, but it is this business leaders' comments on the outlook that are even more important.
Commentary and guidance is a big deal, but this quarter is critical. Analysts do not agree on whether the first quarter or even whether the second quarter will see a gain or decline in growth.
At the same time, economic data are beginning to turn more positive, and first quarter growth has quickly gone from forecasts of nearly flattish back in January to now around 2%, on the back of better March releases. The economic data has been uneven, in part because of the government shutdown, but it must show the economy is back on track.
"The market has been very sensitive to data picking up. The market is reflecting that, even though there's talk of an earnings recession. What you don't want is an earnings recession leading to an economic recession. If companies believe there's a major downturn in revenue growth, they stop spending and they fire people and that leads to a recession," said Wu of KCI.
Earnings season got off to a good start with J.P. Morgan quarterly earnings report Friday. CEO Jamie Dimon was very positive, saying the U.S. economy's expansion "could go on for years."
"If you look at the American economy, the consumer is in good shape, balance sheets are in good shape, people are going back to the workforce, companies have plenty of capital. At least for now.