Earnings growth for U.S. companies will be stagnant in 2020 as a result of the coronavirus, according to Goldman Sachs.
The Wall Street firm revised its earnings estimate for the year to $165 per share from $174 per share, representing 0% growth in 2020. That is a dramatic move from the consensus. Forecasts still expect earnings to climb 7% this year.
"US companies will generate no earnings growth in 2020," Goldman's chief U.S. equity strategist, David Kostin, said in a note to clients Thursday. "We have updated our earnings model to incorporate the likelihood that the virus becomes widespread."
U.S. equities have been in a tailspin this week on fears that the deadly virus will dent global economic growth. The rapid spreading of the virus across multiple continents has caused the Dow Jones Industrial Average to drop more than 8% since Monday. The S&P 500 lost about 8.6% and the Nasdaq fell nearly 2.9% in the same period.
"Our reduced proﬁt forecasts reﬂect the severe decline in Chinese economic activity in 1Q, lower end-demand for US exporters, disruption to the supply chain for many US ﬁrms, a slowdown in US economic activity, and elevated business uncertainty," said Kostin.
The Dow, S&P 500 and Nasdaq all closed correction territory Thursday, down at least 10% from its 52-week high. Fear spiked after the Centers for Disease Control confirmed the first U.S. coronavirus case of unknown origin in Northern California.
Investors, however, have held out hope that earnings would recover after the coronavirus passes. Goldman, with this new note to clients, is shooting down that hope. Goldman expects that S&P 500 companies will report a decline in earnings in first half of the year.
Companies like Apple, Nike and United Airlines have warned they will not meet their earnings and revenue guidance due to the virus's impact on supply chains. Chip stocks have been hit especially hard as they have large portions of their revenues coming from China.
Microsoft raised a flag on Wednesday that the technology giant won't meet quarterly revenue guidance for segment that includes Windows because of the coronavirus.
"A more severe pandemic could lead to a more prolonged disruption and a US recession," Kostin added. In this case, S&P 500 earnings would fall by 13% in 2020.
The firm expects earnings of $175 per share in 2021, representing 6% growth in earnings.
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— With reporting from CNBC's Michael Bloom.