First the good news: About 75% of the companies in the S&P 500 have reported earnings for the first quarter of 2019, and the results are better than expected, helping to lift the market back to all-time highs (with some help from companies buying back their own stock at a record pace). Analysts expected that earnings would be down about 2% from a year ago at this time (1st quarter 2018), but actually earnings are about flat over all, notwithstanding the great variability in company specific results. While flat does not sound great, it is better than 2% down. And after a very high growth rate in 2018 — S&P 500 profits were up more than 20% thanks in part to corporate tax cuts — corporate earnings are now as high as they have ever been, 80% higher than in 2006.

The not-so-good news: As the earnings chart shows, estimates are that earnings are likely to show small declines for the next 12 months, not just in the US but also in major foreign economies, including the Eurozone, Japan and China. While a bit of a slowdown in earnings is widely anticipated, something larger than that could rattle the markets, hence the nervousness about global trade tensions escalating. Further, revenue growth for first-quarter 2019 is averaging 5% so far, which is not bad, although less than anticipated. As such, we have become a bit more defensive in our equity allocations. But we are definitely not “selling in May and going away,” since US equity valuations are not unreasonable (the S&P 500 is priced at around 17 times estimates for the next 12 months, in line with its historical average).

Will 2019 turn out to be a peak year for corporate earnings? No one knows for sure, but we are not likely to see another growth spurt such as that of 2018 for a while.