The end of December is coming fast. That means it’s time to finish up your Christmas shopping and start looking towards 2020 and the new year ahead. First up: Earnings.

Following last year’s tax-cut-driven 20% increase in S&P 500 EPS, index earnings have spent most of 2019 going nowhere. The top line has been steady – revenues have grown in the mid-single digits. Profit margins, though, have been under pressure. Faced with increased costs from both labor and tariffs, margins have contracted from record levels in 2018. The result: trailing 12-month profits have spent the year stuck just below $170.

Of course, equities don’t really trade on what companies earned in the past – more important is what they’ll earn in the future. Earnings are expected to grow 9.7% in 2020, aided by another mid-single digit year from revenues and a stabilization in margins. Here’s the quarterly consensus EPS breakdown from FactSet, with implied year-over-year growth rates.

The remaining question is, how accurate will those consensus estimates turn out to be? Analysts tend to be overly optimistic. According to FactSet, estimates at the beginning of the year have been, on average, 6.9% too high over the last 20 years. Last year was no different. On December 7, 2018, the consensus estimate was for 7% earnings growth, much of it thanks to the 4th quarter’s anticipated boost of nearly 12%.

The actual results haven’t quite lived up to the hype. A lackluster first 3 quarters are in the books, and while final tally for Q4 is still a few months away, it seems safe to say 12% growth is out of reach.

With that all said, it’s not impossible for actual earnings in 2020 to outperform today’s estimates. Earnings in 2018, aided by a cut to the corporate tax rate, handily outperformed initial expectations. So did index EPS in 2004, 2005, and 2006. In 2020, it seems growth outcomes are dependent on a resurgence in global demand – the Energy, Industrials, and Materials sectors are set to lead the rebound.

While it’s true the estimates for each sector have ratcheted lower since the end of September, the U.S. consumer remains healthy by all accounts. If Friday’s trade deal stands the test of time, the uncertainties that have held back capital spending could dissipate. A true trade resolution could be a stabilizing, if not re-energizing, force for S&P 500 earnings.

The trend over the coming months should tell us a lot about where the year is headed.

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