Merrill no longer expects earnings growth in the US in 2016

The bank sees 7% YoY EPS growth for S&P 500 in 2017… but this will probably depend on the global macro picture which is not very comforting right now.

From Merrill’s strategists:

« In the wake of the weaker-than-our-expected 1Q results and recent macro headwinds, we are trimming our S&P 500 EPS forecasts by 3% in 2016 and 2% in 2017. Our revised forecasts of $117 (flat y/y) in 2016 and $125 (+7% y/y) in 2017 suggest downside to the bottom-up consensus of 1% and 7%, respectively. Excluding the extremely volatile earnings of the Energy sector, which we expect to decline by more than 50% for a second consecutive year, we forecast S&P 500 earnings growth to trend from 7% in 2015 to 0% in 2016 and 4% in 2017. At 2098, the S&P 500 currently trades at 17.9x our 2016E EPS while our year-end target of 2000 implies a 16x multiple on our 2017E EPS. »


« Earnings season for 2Q is about to kick off, and despite our expectation of a 3% beat vs. consensus, we think S&P 500 EPS is still likely to come in below 2Q15. While this would mark the fourth consecutive quarter of negative y/y EPS growth, in our view, what is encouraging is that 1Q likely marked the trough. Despite the negative impact of the Brexit vote, we see EPS growth accelerating throughout the rest of the year, but not nearly at the trajectory of consensus expectations, which imply growth will accelerate from -6% in 1Q to +9% by 4Q (Chart 1) and +16% by 1Q17. And given the S&P 500’s 15% rally since mid- February, we are concerned that much of the improvement in earnings growth may already be priced in, especially with signs that earnings revision trends may be rolling over. »


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