With markets taking fright again over trade tariffs and a faltering global economy, investors are braced for weak third quarter results in Europe and high expectations going forward could come crashing down to earth.
There have been a slew of profit warnings in recent weeks which have stirred worries that the earnings slowdown will spill over into next year.
Companies continued to grapple with weaker economic growth stemming from trade spats and the uncertainty caused by the UK's delayed exit from the European Union.
Markets were rattled last week by US manufacturing and services data that fell below expectations, a move by Washington to hit European products with tariffs and worries over Brexit.
After falling into a so-called corporate recession in the second quarter after two quarters of profit decline in a row, European companies are expected to report in the coming weeks a 2.2% drop in profits in the third quarter.
This would be their worst quarter in three years, according to Refinitiv I/B/E/S.
While 4% earnings growth is seen as achievable for the US in the fourth-quarter, interviews with investors, analysts and strategists and companies paint a different picture for Europe for the remaining months of 2019 and into next year.
Companies are taking measures such as cutting costs to shore up profits.
But a harder-to-fix drop in demand for products is expected to be evident in company revenues for the July-September quarter, which are seen falling 0.3%, the first quarterly turnover drop since early 2018.
There is room for much disappointment given that consensus profit estimates for the fourth quarter and 2020 are still high at around 10% growth and analysts say expectations could be brought back down to reality over the coming months.
"The big hurdle for this year would be the fourth quarter, not the third quarter," said Fabio Di Giansante, head of large-cap European equities at Europe's top asset manager Amundi with €1.43 trillion in assets under management.
"I would expect more warnings after last week," Di Giansante said, following the earnings downgrades by Pearson, Imperial Brands, Aer Lingus owner IAG and Carnival that knocked billions of pounds off their market value.
At best, Di Giansante expects profit growth to flatline in 2020 while UBS has pegged a 4% drop.
A shift by investors into beaten-down stocks that look value for money in September has caught some investors off-guard, who were heavily invested in rapidly expanding companies.
But ahead of the results season value stocks are likely to be seen as a shelter, giving less of a shock if a company misses estimates.
The final quarter of 2018 also started with major stock indexes close to current levels and earnings growth expectations for the year ahead around 10%.
Analysts ended up cutting earnings growth estimates for 2019 to low single digits and the toxic mix of an uncertain macro environment and earnings downgrades led to one of the steepest sell offs in stock market history in late 2018.
But this time could be different, some market experts said, as central banks are more dovish now, providing monetary stimulus and interest rate cuts that have supported stock markets.
Equity strategists do not expect 2020 earnings to be as bad as 2019.
And apart from the battering stocks received last week, the STOXX 600 index remains on track for its best annual performance in six years.
