Fourth-quarter reporting season, with major banks releasing numbers next week, will also serve as an important transition period between 2018's strong double-digit profit growth and 2019's much slower single-digit pace.
Earnings are expected to be strong, up 14.7 percent in the fourth quarter, but corporate executives will be discussing the activity in the current quarter, which is expected to see much slower profit growth. First-quarter earnings are expected to be up around 3.9 percent, according to Thomson Reuters.
But analysts say while the expectations have come down sharply for 2019, so have stock prices, and that could provide breathing room.
"We could see continued volatility, but I think the bar is set so much lower with valuations so much lower than going into Q3 reporting," said Keith Parker, chief U.S. equities strategist at UBS. "You've had such an unwind in the fourth quarter. Momentum stocks were unduly punished and there's less of an overhang. You put that all together, and it makes the likelihood of a bust, in our view, much less likely. Our view is we'll probably have more mixed results and guidance going into the quarter, but it does raise the likelihood of relief rallies, given where positions and expectations are."
For the fourth quarter, at least 72 S&P 500 companies have issued earnings warnings, twice as many as have issued positive guidance, according to FactSet. Earnings growth rates have also been revised lower by companies in all 11 S&P sectors. As of September, earnings for the quarter were expected to be up more than 18 percent, but that number has been revised down.
"I think the earnings expectations are low enough that people feel they need to exceed those lowered expectations for Q4," said Sam Stovall, CFRA chief market strategist. "In each of the last 27 quarters, the S&P 500 had earnings that exceeded estimates. So, with the bar having been set lower, I think that investors are expecting Q4 of 2018 to be the 28th consecutive quarter. I think investors are not going to be very forgiving of companies that miss reduced Q4 earnings estimates."
Stovall said 2019 earnings had been expected to be up 10 percent, as of September, but that forecast has fallen closer to 6.5 percent.