The stock market is rapidly losing its biggest driver of gains as global trade tensions flare

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• Analysts are chopping down their earnings estimates across sectors at a rapid clip, reversing what was a steadily improving trend, according to Deutsche Bank strategists.
• Corporate earnings growth is the foremost driver of stock-market gains, which makes profit forecasts crucially important.
• The tempered earnings expectations come as ongoing trade uncertainty weighs on business planning and global economic slowdown take hold, strategists and economists say.
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Analysts have chopped down corporate profit forecasts at a rapid clip this month, putting a dent in what was an improving months-long trend, a new Detusche Bank analysis shows.

"Downgrades for global 2019 earnings estimates accelerated again this month after being on an improving trend since December," Binky Chadha, the firm's chief global strategist and head of asset allocation, told investors on Tuesday in a note entitled, "Sliding Again."

These reduced expectations for companies' earnings are broad-based, with most regions seeing an accelerating pace of downgrades. Japan, emerging markets, and the US saw the most severe reductions in June.

Deutsche Bank

Earnings estimates revisions, per DB strategists.

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On the sector level, analysts cut estimates across the board this month, with materials and consumer discretionary seeing the heaviest number of reductions.

Even expectations for the consumer staples sector globally - which saw the least number of earnings downgrades for the month of June - remained flat compared to the previous month.

Deutsche Bank

Earnings expectations by sector, per DB.

While each company has its own idiosyncratic, industry-specific challenges, analysts' trimmed estimates have been broadly predicated upon the slowing pace of global economic growth and trade-related uncertainty.

Considering corporate earnings growth has been the foremost driver of gains throughout the 10-year bull market, the acceleration of cuts this month could be interpreted as more evidence global economic conditions are souring at a late stage in the business cycle.

The International Monetary Fund in April downgraded its global growth outlook for the third time in six months, to the weakest pace since the global financial crisis, and cited uncertainties related to Brexit and the US-China trade war.

The trend was front and center on Wednesday after the shipping giant FedEx issued guidance that fell short of already-tempered expectations. The Memphis company in part blamed global trade uncertainty. As a result, a number of equity analysts cut their earnings expectations.

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