Corporate America's profit engine may be running out of steam. Wall Street analysts, expecting two quarters of declining earnings, are banking on a second-half recovery to keep 2015 from becoming the worst year for profits since the last recession.
But with U.S. crude holding below $50 a barrel and the dollar at 12-year highs against the euro, even those bets may be optimistic.
This year's U.S. profit estimates have fallen sharply in recent months to a mere 1.7 percent growth, Thomson Reuters data shows, as analysts cut already gloomy forecasts for energy company earnings and the dollar keeps climbing, hurting U.S. exporters, including multinationals.
A projected 55 percent decline in energy company earnings is the single biggest downward influence on estimates, but the outlook for almost every other sector has fallen as well.
At the start of this year, according to Thomson Reuters data, analysts were estimating that earnings in 2015 would grow 8.1 percent.
If profit across the board comes in at 1.7 percent higher, 2015 would the worst year for companies in the S&P 500 index since 2009, when earnings fell 5.5 percent.
Profit estimates for the first and second quarters already are in negative territory, with analysts expecting them to decline 2.7 percent and 0.1 percent respectively, the data shows.
That may be a problem for stock investors given concerns about valuations. The S&P 500index - whose forward price-to-earnings ratio of 17.1 is above its historic average of about 15 - is down roughly 2 percent from its March 2 closing record high.
"It's an open question whether there's any earnings growth this year," said John Carey, portfolio manager at Pioneer Investment Management in Boston. "With a market multiple slightly above long-term averages, you have to ask whether the market's going to go anywhere."
The surprisingly sharp run-up in the U.S. dollar could be having a more widespread effect than low oil prices, since almost half of S&P 500 company sales come from overseas, analysts say.
"For corporate America, it is the sheer violence of the (dollar's) move over such a brief period of time that has been troublesome for multinational companies that can't hedge out the immediacy and abruptness of that increase," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
The dollar .DXY is up more than 23 percent against a basket of currencies since last June. Against the euro EUR=, it has risen roughly 12 percent year to date.
Analysts have become increasingly pessimistic about energy companies, after a 55 percent drop in U.S. crude prices CLc1 since the end of June. Without the energy sector, the S&P500's profit for the full year would be forecast to rise 8.4 percent, Thomson Reuters data showed.
A 5 percent growth rate for the telecommunications sector is the only one that has not been revised downward.
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