Halfway through earnings season for the fourth quarter of 2019, and it's been a tale of haves and have-nots.
The haves include megacap tech names like Netflix, Intel, Microsoft, Apple and Amazon that reported good earnings. As a result, blended earnings estimates for the S&P 500 have turned positive for the quarter, now up a modest 1.1%, according to Refinitiv.
Those megacap tech stocks have seen their first quarter 2020 estimates raised by analysts, and they have helped pull first-quarter estimates for the S&P well into positive territory, now up 4.9%.
Then there are the have-nots: deeper cyclical companies exposed to the global economy — particularly transports (FedEx), industrials (Stanley Black & Decker, General Electric) and energy (Schlumberger, Hess, Marathon Petroleum) that have reported and have seen their estimates for the first quarter reduced, much of it (but not all) on coronavirus fears.
As a result, there have been notable declines in estimates from the cyclical sectors that would be most affected by a global slowdown due to the virus: materials, industrials, energy and hotels/restaurants.
Q1 earnings estimates: change from Jan. 17
Bulls, or course, insist that that market will rally if coronavirus fears taper off in next few weeks.
Bears insist that even if the infection rate begins to decrease, the damage to China is enough to justify lower earnings for these sectors.
The truth may be in the middle, according to Nick Raich, who follows corporate earnings at Earnings Scout.
"I doubt this is a pandemic of epic proportions," he told me. "The bigger problem is that stocks got very expensive. Earnings have not expanded enough to justify the higher prices."
Raich noted that the whole issue of whether the global economy is bottoming is now unclear, and this was a major reason stocks rallied in January. China growth is particularly in question as the positives of a trade truce are negated by coronavirus.
One trend is clear: Bulls are once again making an attempt to buy the dip. They tried that last week, but it didn't work. They are trying it again, but if the market drifts lower and ends below last week's low in the next day or so, that will be a sign that buying the dip doesn't work, and a clear sign the bears are gaining control of the narrative.