Business executives in the United States have lowered their expectations for hiring, investment and sales in the second quarter of 2019, citing uncertainty in global trade. The CEO Economic Outlook Index, a gauge of business confidence of big US corporations issued quarterly by the Washington-based Business Roundtable, decreased 5.7 points in the second quarter to a value of 89.5.
The survey results showed that CEO plans for hiring decreased 5.2 points to 75.2, plans for capital investment dropped 2.9 points to 88.1, and expectations for sales slumped 8.9 points to 105.1.
As for the overall U.S. economy, the 127 CEOs who completed the survey projected a 2.6% growth of the gross domestic product in 2019, 0.1 percentage point higher than the estimate made in the previous quarter.
“Uncertainty about U.S. trade policy, softening global growth conditions and inaction on other pressing public policy issues are a concern”, said Jamie Dimon, chairman and CEO of JPMorgan Chase. He urged the US Congress and the Trump administration to “enact policies that will encourage inclusive growth, innovation and opportunity in the United States”. Those policies, he said, include investment in infrastructure and workforce training, immigration reform, as well as trade expansion.
For Q2 2019, the estimated earnings decline for the S&P 500 is -2.5%, according to the companies guidance, which will mark the first time the index has reported two straight quarters of year-over-year declines in earnings since Q1 2016 and Q2 2016. The companies that generate more than half of their sales outside the US market will see a decline of 9.3% in their second-quarter earnings. On the revenue side, those companies will have to prepare themselves for a 1.2% decrease.
At the sector level, analysts are most optimistic on the Energy (64%), Health Care (60%), and Communication Services (60%) sectors, as these three sectors have the highest percentages of Buy ratings. It is interesting to note that the Energy sector is projected to report the largest earnings decline (-9.8%) of all eleven sectors in CY 2019 and the largest earnings growth (29.3%) of all eleven sectors in CY 2020.
On the other hand, analysts are most pessimistic about the Consumer Staples (39%), Utilities (43%), and Real Estate (44%) sectors, as these three sectors have the lowest percentages of Buy ratings. The Real Estate sector also has the highest percentage of Hold ratings (50%), while the Consumer Staples sector also has the highest percentage of Sell ratings (12%).
The forward 12-month P/E ratio for the S&P 500 is 16.5. This P/E ratio is equal to the 5-year average (16.5) but above the 10-year average (14.8).
Last week there was only one major earnings statement of the chip market Broadcom.
Chipmaker Broadcom lowered its expectations for the year
Chipmaker Broadcom has reported a decline in Q2 revenues and has lowered its expectations for the year, blaming the ongoing difficulties at Huawei.
The beleaguered Chinese smartphone manufacturer is a major customer for Broadcom, which specializes in wireless communication chips for smartphones and other devices. Last month, the US Commerce Department prohibited American firms from doing business with Huawei, a move which limits the company’s access to the Android operating system and key mobile components.
Broadcom missed analysts’ revenue expectations and slashed its full-year revenue outlook by 2 billion USD. The surprisingly gloomy report dragged the rest of the chip sector stocks and Apple (AAPL) down with it.
The CEO Hock Tan partly blamed the outlook on the Trump administration’s ban on US companies selling components to Huawei.
“With respect to semiconductors, it is clear that the US-China trade conflict including the Huawei export ban is creating economic and political uncertainty and reducing visibility for global customers”, said Hock Tan in a conference call with investors late Thursday. Tan said the environment is “very, very nervous” and that Broadcom has experienced a “sharp and rapid contraction” in the supply chain and orders.
The gloomy comments dash hopes of a second-half turnaround this year in the chip industry, which is viewed as an economic bellwether.