The first-quarter earnings season has just kicked off. Per the latest Earnings Preview, the bottom line of S&P 500 companies is expected to increase at a highly impressive rate of 16.6% on a year-over-year basis. This prospective upside marks the maximum quarterly earnings growth pace in seven years. The report further predicts that 11 of the 16 Zacks sectors are projected to exhibit double-digit earnings growth in the to-be-reported quarter. Total revenues for the same set of companies are projected to grow 7.5%.
However, focusing our attention on the Large Cap Pharma and Medical-Drugs sector, we note that both these sectors have decreased 6.2% and 4.2%, respectively, since February this year due to broader market pressure. Further, the S&P 500 index has registered a decline of 6.2% since the second month of 2018.
We remind investors that the U.S. stock market is facing a severe volatility since the last couple of months despite a strong start this year. This downside can mainly be attributable to a potentially damaging trade war between the world’s two largest economies, United States and China, since this February.
After President Donald Trump announced plans to impose tariffs on up to $60 billion of annual Chinese imports, China retaliated by notifying its intention to levy tariffs on 128 U.S. products. Such aggressive exchange has triggered tensions of a possible trade dispute between the two countries. Moreover, sluggish large-cap tech stocks are cited as another reason for this plummet in the market.
Despite the recent market unrest, an optimistic sentiment revolves around the remaining year. Notably, the biotech sector is likely to improve as the year advances. We expect new product sales to thrive in tandem with rising demand. This apart, a successful innovation and a host of product launches, strong clinical study outcomes, more frequent FDA nods, solid performance of key products, growing demand for drugs, especially to deal with rare-to-treat diseases, an ageing population and an escalated healthcare expenditure are some of the factors to keep the sector stable.
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