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Positive Market Sentiment For Stocks Comes As More Companies May Face Margin Headwinds

Rising labors costs could become more of a factor for operating margins.

Institutional investors and sell-side analysts turned less bearish in the first quarter compared to the final three months of 2018, accompanied by a more optimistic perceived tone from company management, according to research tracking sentiment trends among the institutional community.

The research released April 12 by Corbin Advisors in Hartford, Connecticut, found that its measure tracking neutral to bearish or bearish sentiment fell to 33% in the first quarter compared to 49% in the fourth quarter of 2018. Within that segment, one-third of the surveyed 76 institutional investors and sell-side analysts across the globe described their sentiment as neutral, an increase from just 14% last quarter. Looking at company management, 45% described executives as neutral to bearish or bullish, up from 37% last quarter. 1

The significant decline in bearish sentiment was helped by fewer concerns over rising interest rates (the top concern in Corbin Advisors’ previous survey) as well as a decline in concerns over a recession. Trade war woes also subsided as have input costs, giving way to a more stable investing environment.

It’s not much of a secret that sales and growth forecasts have been dwindling since the start of the year even as stock prices continue to surge. The S&P 500 is up nearly 16.0% year-to-date through April 16, while the Dow Jones Industrial Average has gained 13.4%, and the Nasdaq Composite is up 20.6%.

A broad look shows that reported and estimated earnings-per-share for companies in the S&P 500 are slated to decline 4.3% compared to a year ago, the first quarterly decline since the second quarter of 2016, according to FactSet Research Systems Inc., based on data through April 12. Other key metrics for corporate earnings, such as profit margins, are also widely expected to slip. Emerging as an issue for more companies: rising labor and input costs, and foreign exchange.

Of the 25 companies (albeit, representing only 5% of the S&P 500) that had reported earnings through April 11, rising wages and labor costs were cited by 10 companies and foreign exchange by 13 companies as a factor that either had a negative impact on earnings in the first quarter, or are expected to have a negative impact on earnings in future quarters, according to FactSet. 2

The diminishing prospects for earnings growth, however, haven’t dampened sentiment among analysts tracking S&P 500 companies on the evidence of their price targets. Sundial Capital Research, an independent investment research firm that applies mass psychology to financial markets, recently noted that Wall Street analysts are technically bullish, but fundamentally bearish.

“In recent weeks, Wall Street analysts have been raising price targets on stocks within the S&P 500. At the same time, they’ve been lowering their earnings estimates,” Jason Goepfert, the firm’s president and CEO, said in an April 15 blog post (see chart below). 3



Usually, there is a positive correlation between price targets and earnings estimates, he said. “When there is a divergence like this, it has been a negative for the earnings season,” Goepfert wrote.

For their part, investors and analysts surveyed by Corbin Advisors from March 13 to April 3 generally report taking a wait-and-see approach and are looking at broad trends across industries to see how companies fare in a slowing growth environment. They expect trends to crystalize with the current earnings season. Also, reflecting the changing times, 70% of respondents are placing more emphasis on balance sheet strength versus a year ago.

“Amid anticipation of gradually decelerating growth, margin preservation is a key focus for investors this earnings season,” said Rebecca Corbin, founder and CEO of Corbin Advisors. “It’s important that executives proactively address capital deployment strategies, including balance sheet strength or continued plans to delever, and be prepared for questions on the second half.”


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  1. Corbin Advisors (2019, April 12). Corbin Advisors Releases Inside The Buy-side®: 1Q19 Earnings Primer [Press Release]. Retrieved from: (The survey of 76 institutional investors and sell-side analysts globally, representing more than $768 billion in equity assets under management, was conducted from March 13 to April 3.)
  2. Butters, J. (2019, April 12). Earnings Insight. FactSet Research Systems Inc. Retrieved from:
  3. Goepfert, J. (2019, April 15). Wall Street Is Technically Bullish, Fundamentally Bearish. Sundial Capital Research. Retrieved from:

Sources for Financial Data:

S&P 500:

Dow Jones Industrial Average:


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