Corporate earnings could be soft for second quarter, but should bounce back next year

Hang on to your hats: Talk of an earnings recession is back, as second-quarter profit reports from banks like JPMorganChase JPM, -0.31%   and tech firms like Netflix NFLX, -0.12%   move toward center stage.

But that talk won’t last long. And looking past it seems like the best way to prepare your money right now.

Because the truly striking thing about strategy reports coming out ahead of earnings season (at least to me) is that Wall Street sees 2020 shaping up as a year of double-digit profit gains.

Bottom-up forecasts — from Bank of America Merrill Lynch (the big bank, with all the usual caveats about objectivity) and independent research firm CFRA — both see 2020 profits rising 12%, albeit after a 2019 that’s nearly flat, with Merrill predicting a 2% gain from last year and CFRA seeing 1.8%, and nodding to consensus forecasts that say second-quarter profits may actually drop.

Death mildly exaggerated

That’s a good bit different than the protestations of doom emanating from people who demand that the Federal Reserve cut interest rates — by at least a quarter point at the end of this month, and ideally (to them) by as much as a point over the next year. If Mark Twain were a banker, he might say that reports of stocks’ death have been at least mildly exaggerated.

Merrill’s strategy team, led by Savita Subramanian, writes that consensus estimates for the second quarter were cut by 2% over the past three months, with the largest cuts in sectors exposed to China, such as materials and industrials. “We see upside risks and forecast flat growth versus consensus’ minus 2%.”

About two-thirds of early reporting companies have beaten expectations, Merrill continues. “Early reports are good harbingers of full-quarter results.”

It’s been strange to behold the Dow

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