US Earnings Disappoint But Valuations Look Good

Earnings season in the US has been disappointing, capping a difficult year of reduced earnings growth and resulted in a flat stock market, but JPMorgan is buoyant

J.P. Morgan Asset Management 24 February, 2016 | 10:10AM
Facebook Twitter LinkedIn

Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, James Liu, of the JP Morgan Global Markets Insights Strategy Team, explains why investors should not be put off by a poor earnings season in the US.

U.S. earnings continued to disappoint in the fourth quarter of 2015, more than a year after the headwinds from oil and the U.S. dollar emerged. This slowdown in earnings growth has added to the cloud of uncertainty facing equity markets. Unlike in years past, when geopolitical and global growth concerns had been allayed by strong U.S. earnings, these disappointing results have provided little comfort during this difficult start to the year. However, full-year 2016 estimates are still positive, and this is what should drive long-term investment views.

Thus, while risks to the equity story have clearly increased, there is potential upside from here. Markets are pricing-in extreme scenarios, with nearly 65% of S&P 500 companies in bear market territory and sentiment at cycle lows. Our base case is that the U.S. economy continues to grow and that earnings can recover from macroeconomic headwinds. With the market effectively on sale, we believe there are significant stock-picking opportunities for active managers.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

J.P. Morgan Asset Management  is the investment arm of JPMorgan Chase & Co. and it is one of the largest active asset managers in the world.