S&P 500 Earnings are DECLINING 230119

The Market has started the year off fairly well, as it does in most years, especially those following high levels of tax harvesting.  But can the euphoria hold?  I don’t think so, for many reasons, but primarily because corporate profits are deteriorating.

The attached chart is busy, and will be the subject of many future podcast episodes.  Note the following-

  • S&P 500 declines along with Earnings.
  • Profits soared over the past 14 years primarily driven by cheap & easy monetary policy.
  • Earnings can decline rapidly in a recession.
  • Price/Earnings Ratio was the lowest during Energy Crisis (1970s) & final state of the Cold War (1980s)

The 2023 situation is-

  • Earnings are declining.
  • Era of cheap money negative interest rates is likely over.
  • Leading economic indicators have been deteriorating since Sep/Oct forecasting a recession.
  • Cold War II is mounting-
    • Ukraine Invasion Energy Crisis.
    • Technology sanctions on China likely restraining future global trade.

I believe that the short term upside to the S&P 500 is very limited and that capital is better placed in money market funds, now paying very favorable interest rates. 

Stay tuned…new opportunities will emerge.

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