Profit Confidential says four consecutive months of negative earnings on the S&P 500 points to a stock market crash.
— Profit Confidential (www.ProfitConfidential.com) an e-letter of Lombardi Publishing Corporation, a 30-year-old consumer publisher that has served over one million customers in 141 countries, cautions that an earnings recession (at least two consecutive months of negative earnings) on the S&P 500 points to a stock market crash.
“A stock market crash occurs when the underlying fundamentals of the economy and corporate earnings are tormented at the same time. That is what is happening right now,” says economist and lead contributor Michael Lombardi. “In the first quarter of 2016, S&P 500 companies are expected to report a decline in earnings of 9.1%. That would represent the fourth consecutive quarter of declining corporate earnings—the longest streak since 2008.” (Source: “Earnings Insight,” factset.com data set, April 8, 2016; http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_4.8.16.)
Lombardi explains how that does not bode well for the stock market, which has rallied over the last two months as economic fears of a U.S. recession have eased. In large part, it is because there are no fundamentals supporting rising stocks prices. In fact, corporate America is warning investors that there is plenty of turbulence ahead. In the second quarter of 2016, earnings are projected to decline by another 2.5%. If unprecedented and record corporate buybacks are removed from the equation and the whole stock market would collapse.
Corporate earnings are doing poorly because the U.S. economy is not sound. In its most recent economic projections, the Federal Reserve revised its projected U.S. economic growth downward to 2.2% from 2.4% in December 2015. This is also down significantly from the Federal Reserve’s December 2013 projection that the U.S. economy would grow by 2.3% in 2016. (Source: “Economic Projections,” federalreserve.gov data set, March 16, 2016; https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20160316.pdf.)
“If the past is any indicators, we will see these economic growth projections get revised even lower. That’s because the U.S. economy is struggling. From what I can see, investors are selling into the current rally, not buying into it,” Lombardi concludes. “I believe the stock market put in a major top in 2015. And 2016 could be the year we see the broad market sell-off worsen.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.lombardipublishing.com/customer-service.html
Name: Wendy Potter
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Release ID: 111044