The forthcoming quarterly reporting season for listed US companies could be "make or break'' time for the rally seen in global sharemarkets in recent months.
Sharemarkets around the world have had a "stunning'' start to the year, shaking off the worries of 2018 and "rocketing right back up towards record highs'', Craigs Investment Partners broker Peter McIntyre said.
In the first three months of the year, US shares posted the best quarterly gain since 2012 and the best March quarter since 1998.
For the NZX, the market finished the quarter up 11.7%, the largest rise since the end of 2015. The NZX 50 index has been hovering just below 10,000 since early April.
He highlighted the Reserve Bank had also surprised financial markets during the quarter, unexpectedly shifting to an easing bias of the interest-driving official cash rate, which meant it was now leaning towards rate cuts.
"With markets expecting easier monetary policy in the US, the Reserve Bank may have seen it necessary to follow suit,'' he said.
The US quarterly reporting season began this week and the rest of the market would report over the remainder of April, allowing investors to take the pulse of corporate America, he said.
Mr McIntyre said key manufacturing gauges in China and the US were better than expected last week, while the latest jobs report was strong enough to allay fears of any cracks in the US labour market.
"This has all come on the back of central banks that are happy to keep interest rates at very low levels, as well as some improved economic indicators,'' he said.
However, for share prices to keep rising sustainably, the one important ingredient needed was companies' earnings.
"In this regard, the next few weeks could make or break the current rally,'' he said.
Earnings growth had been very strong during the past four or five quarters, in part due to the Trump Administration's tax cuts, which were implemented in early 2018.
"This helped push annual earnings growth to more than 20%, levels we hadn't seen since 2011,'' Mr McIntyre said.
However, the one-off tax-cut boost was behind us, the global economy had slowed during the past six months, and higher oil prices and a tight labour market added to cost pressures for many companies, he said.
Put together, these were now a recipe for weaker earnings growth, and much less upbeat headlines in the financial press.
Aggregate earnings for the S&P 500 in the US are forecast to have fallen 3%-4% in the March quarter, the first decline since 2016.
Mr McIntyre cautioned markets were fickle and could become despondent if bellwether US companies started experiencing lower earnings than a year ago, especially since share prices had clawed their way back to high levels.
For the rest of the year, Mr McIntyre said earnings trends were expected to improve, but they were likely to be well below the spectacular levels of last year.
