The big concern as earnings season began was the outlook for this year's growth.
The big stocks reporting on Wednesday have all provided reassuring guidance for 2019, including Dow components United Technologies and IBM, both above consensus guidance, and Procter & Gamble, which was in line with guidance on strong sales.
All three stocks were trading up mid-single digits at midday Wednesday, though off their highs.
It's still early for earnings in general — only 76 of the S&P 500 have reported so far — but here are the trends:
1. The actual fourth-quarter numbers are strong, as expected, with growth estimates in the 14 percent range.
2. First-quarter estimated numbers are still coming down, but the fears of an earnings recession — when you get consecutive quarters of negative earnings growth — are not materializing, at least not yet. So far, first-quarter earnings estimates have been revised lower, from a forecast of 8 percent growth at the beginning of October to a current forecast of only about 3 percent growth. That is a notable decline, but not negative.
We are not going to zero or negative earnings growth, at least not yet. The commentary from CEOs indicates lower growth but no recession. Estimates for full-year earnings growth remain in the mid-single-digit range. However, one of last year's concerns, margin pressure due to higher costs, does appear to be spilling over into 2019.
Estimates for the first quarter have revenue expected to grow over 6 percent but earnings expected to grow only about 3 percent, according to data from Refinitiv.
A revenue number that is much stronger than earnings is a bit odd and something we haven't seen in a few years. It used to be reversed: Revenue growth was weak but earnings were higher because companies found ways to cut costs. This has now changed, indicating margin pressures because costs are rising.
This was reflected in a comment from Kimberly Clark CEO Mike Hsu on Wednesday morning. Kimberly Clark was one of the few companies to disappoint and gave worse-than-expected revenue guidance. Hsu said: "Overall, it was a challenging macro environment and our margins declined, reflecting significant commodity inflation and currency volatility."
Given the challenges stocks are facing (slowing growth in China, lower global growth forecasts, tariff wars, as well as shorter-term issues like the government shutdown and Brexit uncertainty), it's rather remarkable that most equity analysts are still marginally positive on the prospects for stocks to end higher in 2019, with most still retaining year-end S&P 500 estimates of 2,800 to 3,000, well above Wednesday's roughly 2,620 level.
"Absent a recession, we still see equity prices tracing out a jagged advance in 2019," CFRA's Sam Stovall said in a note to clients on Wednesday.