Forget earnings season — Wall Street has already moved on, and investing experts are watching these 3 catalysts instead

  • Half of the companies in the S&P 500 have announced their fourth-quarter results, and some experts think a rare thing is about to happen: Wall Street might essentially ignore the rest.
  • While earnings are typically critical for stocks, investor attention will be occupied by the threat of a new US government shutdown, which could happen next week.
  • Major US-China trade talks could follow later this month, and Britain is due to leave the European Union on March 29.
  • All three of those events have the potential to alter the pace of growth in the global economy.

It’s halftime and everybody’s reaching for the remote to change the channel. No, this isn’t about Maroon 5 at the Super Bowl — it’s about investors potentially ignoring the rest of this month’s corporate earnings.

As of Tuesday, half of the S&P 500 had reported its fourth-quarter results. They’ve contributed to a four-day winning streak and a 9.2% rally for the index this year. But now experts think a string of other major events will crowd earnings out of focus.

Peter Bye, a portfolio manager on UBS Wealth Management’s US large cap growth equity team, said investors will zero in on the potential government shutdown on Feb. 15, the possibility of a meeting between US President Donald Trump and Chinese President Xi Jinping later this month, and Brexit on March 29.

The US government was partially shut down for 35 days ending in late January, and another shutdown might mar investors’ confidence and spending by businesses and consumers. Meanwhile, if Britain and the EU fail to reach a trade deal, Brexit could snarl the British economy.

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A breakthrough on trade might spark more optimism on Wall Street, but a blowup between Trump and Xi could send stocks in the other direction. All three events have big implications for the global economy.

“Those are conceivably three big events that can change the outlook on economic growth this year and earnings estimates for the year,” said Bye, whose firm manages $871 billion in assets. He noted that companies, too, are talking about those issues more and more as they cut their forecasts for this year.

“The references to tariffs, trade, government instability have skyrocketed” as more US companies are lowering their earnings forecasts than at any time since 2009, when the economy and financial markets were in crisis.

That has some on Wall Street forecasting a decline in profits that could last all year. Bye says he’s not that pessimistic. And judging by current projections, neither is corporate America.

If investor attention wanders, it might also be because they’re not hearing very much new information. They knew corporate earnings growth would be strong this quarter — largely a carryover from the Tax Cuts and Jobs Act — but that the fourth quarter wouldn’t be quite as good as the previous three as a result of slower growth in Europe and China.

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Scott Wren, senior global equity strategist for the Wells Fargo Investment Institute, said there are other reasons for stocks to take a break while they wait for those developments. He noted that the S&P 500 has climbed back up to its 200-day moving average for the first time in two months, which suggests near-term gains could be capped.

“We need to get some better clarity on the global growth story,” said Wren, whose company advises firms with $1.9 trillion in assets.

When earnings growth is good, it can stabilize the market during turbulent times. That happened repeatedly last year, when strong earnings kept investors in the market as trade tensions increased. Company profits are the market’s biggest fuel source and it’s unusual for investors to tune them out.

Read more: The chief strategist at a $1 trillion firm warns of a hidden risk that’s threatening to upend the stock market’s biggest catalyst

As of Tuesday morning, S&P 500 earnings are up 14.1% in the fourth quarter, and while expectations had fallen dramatically in the past few months, the companies that have reported so far have handily beaten Wall Street’s projections.

Industrials, tech, internet and consumer discretionary companies are doing the best relative to expectations, as CFRA says they are beating estimates at overwhelming rates. Utility companies, household goods makers and basic materials companies are faring the worst.

Bye named the FAANG stocks and cable companies as groups that have done better than anticipated, while semiconductors, retailers and large drug and biotech companies have disappointed.

He added that the drug companies also face growing political risk as both Republicans and Democrats talk about taking more steps to reduce prescription drug costs, a rare area where they might find common ground.

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