Monday, 09 July 2018 21:00

Bank of America raises 2018 S&P 500 earnings forecast by 4%

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image Getty Images/iStockphoto Things are looking up for earnings. Strategists at Bank of America Merrill Lynch on Monday raised their 2018 and 2019 S&P 500 earnings forecasts, joining market observers who remain optimistic even as the drumbeat of a trade war echoes in the distance. Equity and quant strategist Jill Carey Hall and her colleagues now expect S&P 500 earnings per share at $159 this year, a 4% rise from their previous forecast of $153. The projection stands 20% higher than 2017 EPS for the index and comes on the back of stronger oil prices and robust economic growth, including upbeat jobs data[1]. The team lifted its 2019 EPS view by 6% to $170 from $161. “Higher oil prices are a benefit to S&P 500 EPS, where much of the index either produces commodities or supplies commodity producers,” said Hall in a report. Bank of America’s commodity strategists project WTI crude oil CLQ8, +0.27%[2] the U.S. benchmark, and Brent oil LCOU8, +1.45%[3] the international marker, to average $65 to $70 a barrel in 2018, roughly 25% higher than initially forecast earlier this year. “Nearly 40% of the boost to our earnings forecasts both this year and next year comes from energy,” said Hall. The U.S. economy is also expanding at a faster pace than expected, with Bank of America economists projecting 2018 gross domestic product gaining at a clip of 3%, 0.1 percentage point higher than the previous forecast. A one percentage point increase in GDP boosts EPS growth by around 3 percentage points, according to the strategists. image For now, Bank of America economists believe the impact of Trump administration tariffs implemented so far[4] is likely to be limited. But if tensions escalate and the situation worsens, earnings are likely to be adversely affected, they said. Read: Washington’s ‘political climate’ seen as the biggest risk to stocks, survey says[5] “We’ve estimated that a 10% rise in import costs—assuming a small drop in foreign sales—would reduce S&P 500 EPS by 3-4%. But a larger risk is if global growth suffers,” Hall wrote. In late June, Bank of America projected second-quarter EPS to rise more than 20% year on year to $39.75, while sales were expected to increase 8% year on year. Higher earnings will be a boon for the stock market, which has comparatively underperformed this year compared to 2017. Still, strategists on Wall Street have largely remained upbeat with both JPMorgan Chase & Co. and Citigroup recently issuing...

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