As U.S. companies signal weak earnings, results could undercut market rise

NEW YORK - U.S. companies are more negative in their earnings outlooks than they have been in years, setting the advancing U.S. stock market up for a possible letdown as reporting season begins this week.

In an ominous sign, the ratio of negative to positive guidance from S&P 500 companies for the second quarter is at its highest level since the third quarter of 2016, when companies were just coming out of a four-quarter profit decline, according to IBES data from Refinitiv. That pessimism also is reflected in analysts’ second-quarter earnings estimates, which now call for a drop of 0.4% in year over year earnings for S&P 500 companies after gradually declining for weeks, according to Refinitiv data.

“The bar is clearly higher than it was a month ago given the market’s strength,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

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