Citigroup, Goldman, JPMorgan Slash Profit Outlook for Stocks

(Bloomberg) -- Citigroup Inc. now expects zero growth in global earnings for 2020 as the coronavirus throttles economic growth. And it warns even the new forecast may prove too optimistic.

The bank’s call on earnings per share follows moves Thursday by Wall Street peers Goldman Sachs Group Inc. and JPMorgan Chase & Co. to cut profit estimates on U.S. companies. Goldman expects no earnings gain for American firms this year.

“Given obvious further risks to global GDP, it seems prudent to forecast flat global EPS in 2020,” Citigroup analysts including chief global equity strategist Robert Buckland wrote in a research report dated Feb. 27. The bank expected 4% growth at the start of the year.

“Maybe even flat EPS is too optimistic,” the team wrote. “If the virus slows global economic growth to 2.0% in 2020, our models suggest global EPS could contract around 10%.”

Global equities have sold off precipitously, with MSCI’s all-country stock index dropping more than 10% over its seven consecutive days of decline. It was last down 0.5% at 2:15 p.m. Hong Kong time. The S&P 500 is down 11% so far this week, in the fastest correction from a record high in history.

Investors have been scrambling to evaluate the epidemic’s impact on the global economy as it spreads to more countries, throws supply chains into chaos and restricts movement of people and goods.

Citigroup lowered its target on the local-currency MSCI All Country World Index to 660 by the end of the year, down from a previous target of 690. That would still mark a gain of about 7.5% from current levels.

“We would prefer it to be closer to panic before going all-in. It is not there yet,” the analysts said. “Our global bear-market checklist still says buy this dip, although our U.S. panic-euphoria indicator says not yet.”

Goldman Sachs also lowered its earnings forecasts for Asia ex-Japan stocks as the coronavirus outbreak looks more severe than it did originally, prompting the firm to reduce GDP growth predictions for China and the region.

Consensus expectations of 13% profit growth “are likely to fall,” analysts including Timothy Moe wrote in a research report, citing earnings sensitivity to China’s economy and supply chain linkages.

To contact the reporter on this story: Gregor Stuart Hunter in Hong Kong at ghunter21@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Joanna Ossinger

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