High stakes

NEW YORK – The rockiest US stock market in two years will meet a major test in the coming weeks as first-quarter earnings pour in, with expectations that tax cuts will help Corporate America show its biggest quarterly profit growth in seven years. Any disappointments could further upset the fragile market.

Hopes among stock investors are running high for corporate earnings season, which kicks off in earnest on Thursday and Friday with reports from several large financial institutions including BlackRock (BLK.N) and JP Morgan (JPM.N).

Investors have counted on corporate profits to provide bedrock support as the market endured sharp swings in recent weeks over concerns about a trade war with China and tougher regulations for high-flying technology companies.

The S&P 500 .SPX has recovered some after swooning more than 10 per cent in February from its January 26 record high, confirming a market correction for the first time in just over two years.

The benchmark index remains more than 7 per cent off its all-time peak.

“There is an awful lot of pressure for corporate profits in this first quarter and especially the guidance the companies are going to give to really get this market back on its upward track,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

Analysts expect S&P 500 profits to rise 18.4 per cent in the first quarter, according to Thomson Reuters I/B/E/S, the first full quarter since passage of President Donald Trump’s tax cuts, which slashed the corporate tax rate to 21 per cent from 35 per cent.