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Friday, 19 June 2015

The Corporate Earnings Cycle Has Just Turned Negative In The US

By Zero Hedge

The evolution of corporate earnings in their broadest form can provide a useful indication of the subsequent performance of the US stock markets.

This makes intuitive sense. Growing earnings are generally a reflection of good economic conditions which should be bullish for equities. The opposite also applies of course. But it is at key turning points that this indicator becomes particularly insightful, in our opinion even more than the actual level of the price-earnings ratio.

In our fundamental analysis of the market we like to look at pre-tax earnings published each quarter by the US Bureau of Economic Analysis (“BEA”), adjusted for inventories and capital consumption. This metric includes the earnings of all the companies required to file tax returns in the US (so not just the publicly-listed ones) and as such should be indicative of overall business conditions across the country. It is also a component of total national income, a major macroeconomic variable.

Read the article here.