Yahoo Finance’s Myles Udland joins the Live show to discuss why Wall Street analysts are set on an earnings recession.

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An “earnings recession” refers to a period of two consecutive quarters in which corporate earnings decline year-over-year. While the overall economy may experience growth, companies are faltering in terms of profitability. Many analysts believe that an earnings recession is imminent, particularly for companies in the S&P 500. Here are a few reasons behind this belief:

1. The trade war with China: The on-going trade war between the US and China has created uncertainty for businesses. Tariffs have made it difficult for companies to plan their investments and trading activities. This uncertainty is reflected in the stock market, where volatility has increased. Companies are likely to report weaker earnings, especially those that rely heavily on international trade.

2. Higher labor costs: The tightening labor market has resulted in higher wages and benefits for employees. While this is a good thing for workers, it can put pressure on companies’ profit margins. As companies pay more for labor, their earnings may decline. This trend is particularly evident in the retail and hospitality sectors, where higher minimum wages are taking effect.

3. A slowdown in global growth: The International Monetary Fund (IMF) projects that global growth will slow to 3.3% in 2019, down from 3.6% in 2018. This trend could lead to weaker demand for goods and services, which would translate into lower earnings for companies.

4. Rising interest rates: The Federal Reserve has been gradually raising interest rates, which can make it more expensive for companies to borrow money. As borrowing costs increase, companies’ earnings may decrease.

5. High valuations: After an extended period of growth, many stocks are currently trading at high levels based on price-to-earnings (P/E) ratios. This means that investors have high expectations for companies, and any disappointment could result in a decline in stock prices.

While an earnings recession does not necessarily mean a full-blown economic recession is imminent, it can be a harbinger of economic troubles ahead. Lower earnings can lead to lower investment and hiring, which can translate into slower economic growth. Investors and policymakers will be watching earnings reports closely in the coming quarters to see if the earnings recession becomes a reality.