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When U.S. stocks posted their worst December since the Great Depression, traders put plenty of the blame on actions by the Federal Reserve and that other favorite scapegoat, computerized trading.
But it now seems clear that the market was mostly anticipating what has actually happened in recent days: companies are cutting profit forecasts and trying to temper expectations for earnings growth this year after a big 2018.
On the first day of trading in 2019 last week, Apple warned that its fiscal first-quarter sales wouldn't be as high as previously projected and said its profit margin would be ever so slightly narrower than forecast. The Nikkei Asian Review reported this week that Apple is cutting its iPhone production by 10 percent for the next three months.
It is more of the same for other companies. Beverage giant Constellation Brands said Wednesday that its fiscal 2019 earnings per share would be $9.20 to $9.30, down from the range of $9.60 to $9.75 it forecast earlier. The company said it expects weak sales in its wine and spirits business next quarter.
And homebuilder Lennar said Wednesday that it would delay putting out a 2019 forecast because of "softness" and "uncertainty" in the housing sector.
Interest rate hikes by the Fed have contributed to weaker demand for mortgages and home purchases, but there are other reasons for the late-2018 market decline. Maneesh Deshpande, head of U.S. equity strategy at Barclays, outlined several factors in a note Tuesday, including U.S. political turmoil — the federal government is in week three of a partial shutdown — a weakening Chinese economy and bearish sentiment by retail investors.
Barclays cut its price target for 2019 to 2,750 from 3,000, still up 6 percent, and lowered its projected S&P EPS to $171 from $176.
Morgan Stanley's Michael Wilson, also a chief U.S. equity strategist, told CNBC on Tuesday that he has left his S&P price target unchanged at 2,750. "All of the things that we've been worried about, the market's been worried about all year, are now starting to come to the fore."
Samsung Electronics warned Tuesday of lower-than-expected profit in the fourth quarter, which is soon to be reported, because of rising economic uncertainties. Last month, logistics company FedEx slashed its 2019 earnings outlook and said it would have to cut costs because of a global economic slowdown.
For the fourth quarter, which for many companies ends in December, 72 S&P 500 companies have issued earnings warnings, twice as many as have issued positive guidance, according to FactSet. Earnings growth rates have been revised lower by companies in all 11 S&P sectors.
It's possible the S&P could have earnings growth of more than 15 percent for the fourth quarter, but that would be below the 25 percent notched for each of the previous three quarters, FactSet research said.
And analysts are now looking for single-digit earnings growth for the next three quarters of this year. While fourth-quarter 2018 earnings growth is projected to be 11.4 percent, the first-quarter projection is for 2.9 percent growth, then 3.7 percent in the second quarter and 4.3 percent in the third.
"In the last three months of 2018, markets were pricing in no earnings growth, and perhaps even negative growth, in 2019," said Earnings Scout's Nick Raich. "The good news is that markets likely overshot just how much 2019 EPS estimates were going to drop."
Stocks have rebounded so far in 2019 as investors make a bet that the bad news yet to come this earnings season is priced in. We'll just have to see.