Why the market rally could soon have an earnings problem

Earnings season is ramping up this week, with several big banks set to report. But some analysts are looking past third-quarter results and ahead to what 2018 will bring.

Earnings and revenue growth will both likely slow down next year, ushered in by falling oil and gas prices and lower expectations for global growth, forecasts Chad Morganlander, portfolio manager at Washington Crossing Advisors.

The oil and gas complex has contributed "substantially" to growth this year, Morganlander said Monday on CNBC's "Trading Nation." But it will begin proving more of a "drag" to the market overall heading into 2018, he said, as he anticipates oil and gas prices will falter.

Many strategists over the last year have pointed to a synchronized recovery across economies globally, ultimately giving stocks a boost. Global growth expectations will likely "have to be revised lower" next year, Morganlander said.

"That will also be an anchor to driving expectations lower," he said.

Analysts are expecting earnings growth of 10.5 percent and revenue growth of 5.7 percent in the first quarter of 2018, according to FactSet estimates. This reflects a modest decline in earnings growth quarter over quarter and a slight incline for revenue growth expectations over the same time period.

More granularly, the energy and materials sectors in the S&P 500 are expected to see the highest earnings growth for the 2018 calendar year, while the information technology and energy sectors, respectively, are expected to see the highest revenue growth in the same time.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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