A string of disappointing forecasts from S&P 500 companies has led one of Wall Street’s leading market strategists to warn of a potential drop in earnings this year.

Michael Wilson, chief US equity strategist for Morgan Stanley, slashed his base-case estimate for 2019 earnings per share growth to 1 per cent, down from 4.3 per cent. By contrast, Wall Street’s consensus estimate calls for earnings to grow 5 per cent to $170 a share, according to FactSet.

“When we made our call for a greater than 50% chance of an earnings recession this year, we thought it might take a bit longer for the evidence to build. On the back of a large downward revisions cycle during 4Q earnings season, it’s becoming more clear,” Morgan Stanley analysts led by Mr Wilson wrote on Monday in a note titled Earnings Recession is Here.

An earnings recession is defined as two consecutive quarters of year-over-year declines.

The outlook looks even bleaker when examining historical trends. Mr Wilson noted that when consensus estimates believe a big jump in growth is four quarters away, earnings tend to fall across the next four quarters combined. This trend would equate to a 3.5 per cent decline in S&P earnings this year, he said, although “equity returns can still be positive in this environment.”

Morgan Stanley also maintained its S&P price target of 2,750 for the end of 2019 — implying just 1.6 per cent upside compared with Monday trading.

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