February and March wrought technical damage on major US equity indices, but the path of least resistance increasingly looks up near-term.
March-quarter earnings season is upon us. This is the first quarter US companies will be reporting after the Tax Cuts and jobs Act of 2017 was signed into law on December 22 last year. Among other things, the federal corporate income tax rate was reduced from 35 percent to 21 percent.
If past is prologue, by the time the 1Q18 reporting season winds down, earnings would have come in less than what the sell-side was expecting at the end of the quarter, which, to reiterate, was $35.64. This has been a persistent theme going back several quarters.In 4Q17, for instance, the consensus was $34.30 at the end of December, versus actual earnings of $33.86 when it was all said and done (Chart 2).
Should the trend continue, this can potentially act as a tailwind for stocks in the form of a lower bar.At least the bulls hope so.
