Corporate earnings are off to a good start, but analysts aren't betting on the trend continuing. | Image: AP Photo/Richard Drew

Dow Futures Begin to Unravel Over Fears of Longest Earnings Recession in 3 Years

Futures on the Dow Jones Industrial Average (DJIA) declined on Wednesday, giving back some of their early-week gains as investors braced for corporate America’s longest earnings recession in years.

Dow Futures Fall; S&P 500, Nasdaq Futures Follow

Futures contracts on all three major U.S. indexes edged lower through the Asian session, setting the stage for a weak start to New York trading at 9:30 a.m. ET. Dow Jones futures declined 81 points, or 0.3%, to trade at 26,921.00.

Dow Jones futures
The overnight futures market is pointing to a dismal start to New York trading Wednesday. | Chart: bloomberg.com

The December contract for the S&P 500 Index declined 0.3% to 2,990.00.Nasdaq 100 mini futures contracts tumbled 0.2% to 7,940.75.

U.S. equities traded sharply higher on Tuesday as optimism surrounding U.S.-China trade talks continued to reverberate. The Dow was up more than 300 points earlier in the day before closing on a gain of 237 points.

Earnings Recession Likely for U.S. Companies

Corporate earnings surprised to the upside on Tuesday, with J.P. Morgan Chase (NYSE:JPM), Citigroup (NYSE:C) and UnitedHealth Group (NYSE:UNH) posting better than expected top and bottom-line results. These blue-chip companies masked what many analysts believe will be another disappointing quarter for U.S. companies.

The S&P 500 is expected to report an earnings decline of 4.6% in the third quarter, according to FactSet, a financial research firm. If the forecast holds, it would mark the third consecutive quarter of year-over-year declines – the longest stretch since 2015-16.

Earnings have been revised sharply lower since the end of the second quarter, when FactSet called for an earnings slump of only 0.6%. Unlike in June, FactSet now expects all 11 S&P 500 companies to report earnings declines.

U.S. companies are not only feeling the pinch of a protracted trade war, they have reported negative impacts from foreign exchange rates. According to FactSet, of the 22 S&P 500 companies to have reported earnings through Oct. 10, half cited foreign exchange rates “as a factor that either had a negative impact on earnings or revenues in Q3 or is expected to have a negative impact” in the future.