Back to back quarters of Corp. profit declines… What could it mean?
I saw this tweet today…
Just fyi, the US stock market has never NOT crashed post back to back quarters of corp profit declines
— Keith McCullough (@KeithMcCullough) January 6, 2016
Profits peak when the economy reaches its effective demand limit. A recession eventually follows.
How much can the psychology embedded in the tweet move market expectations?
I feel the economy is close to recession (link) but the data do not say that it has started. The business cycle could still bounce off this moment and keep going a while longer. I am waiting for more data from 4thQ 2015. But we need to keep an eye on the Animal Spirits of psychology.
It is another data dependent moment with Animal Spirits in these interesting times.
Ed,Ed,Ed………….will you please separate sector. The big surge in profit came from oil/gas(mostly oil) and the so called decline came from the same phenotype.
Profit understanding is useless. Remove oil and profits have accelerated. Financial markets imo, are at the end of their recession,which was a small one. Now comes recovery in 2016 as the last of the oil excess is removed from the list and the next paper boom gets going.
You make a good point. The profits are separated into two camps like you say. But I look at the aggregate. At the effective demand limit, when one sector gains profits, another sector must lose. So the aggregate profits is what I look at. But the fact that the profits separate into extreme groups makes it harder to trust the aggregate profit decline.
I still trust the aggregate number at the effective demand limit.
Would be interesting to see an overlay of Fed funds rates/changes over the graphs in your effective demand limit post. If they’re typically the culprit, and the lag is x months or years, would be interesting to see.
Fascinating your comment… I was just doing that before I read your message. I have been thinking about a post for a month now… and it involves the timing of fed rate rises with the measure of spare capacity in relation to the effective demand limit. I am seeing some patterns and working out the logic. I just started putting together the graphs this morning right before your comment.
You are tuned in…