The earnings picture is about to change, likely for the better, and Jamie Dimon may be a big help

Why is that happening? “Analysts over-reacted in December on concerns over a global slowdown led by China and Europe and cut numbers too much,” Nick Raich from Earnings Scout told me.

If companies beat estimates by anything close to 7 percentage points, then earnings for the first quarter are likely to be up in the low single digits, not negative.

No earnings recession!

As for JPMorgan, which is reporting tomorrow, the key issue will not be the dry facts, it will be the tone Dimon strikes about the global economy. Banks in general are continuing to see loan growth in the low single digits, flat interest income because rates are not moving up, and good credit quality.

Bottom line: no one is expecting amazing numbers.

But Dimon could help change attitudes about the global economy in the second half of the year.

The reason: bulls are hopeful Dimon will say the economy is still growing and paint a positive macroeconomic picture for the economy and for banks.

“If they put up a decent number, and Jamie says, ‘Hey, the economy is still chugging along,’ it will go a long way toward quieting down the recession worries,” Jeff Harte, bank analyst with Sandler O’Neill, told me.

Of course, the markets could still turn down if economic data from China and Europe continues to decline, but the biggest obstacle the market faces may not be earnings, it is valuation. The forward earnings multiple for the S&P 500 (Q2 2019 to Q1 2020) is currently 16.8, at the high end of the historic norm of about 15.

That’s no surprise to David Aurelio, who tracks earnings at Refinitiv: The market tends to get ahead of itself. Traders are anticipating we are near a bottom, and the markets are anticipating stronger 2020 numbers,” he told me.

Looked at that way, he’s certainly right: based on 2020 numbers, the S&P is trading at a 15.5 multiple, about inline with historic averages.

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