Beware The Coming Crash: An Earnings Season Reality Check

Takeaway: Fade the Wall Street storytelling.

Beware The Coming Crash: An Earnings Season Reality Check - Bubble bath 9.9.14

 

A lot of people out there still believe the old Wall Street storytelling that "the U.S. economy is fine" or "the stock market has bottomed."

 

We disagree.

 

Here's Hedgeye CEO Keith McCullough in a note to subscribers earlier this morning:

 

"With consensus staring (hoping) at oil, don’t forget that the most important relationship right now is that between profits and credits – w/ 435/500 S&P companies reporting total revs are -4.2% and EPS -6.5%; forget the “ex-Energy” thing – look at the best Sector Short (Financials) who now has EPS -8.8% y/y."

 

A few important things to note:

 

  1. Only 3 of 10 S&P Sectors have POSITIVE year-over-year EPS growth
  2. ENERGY (31 of 41 companies reported) has SALES -34%, EPS -74%
  3. FINANCIALS (85 of 89 companies reported) has SALES -1%, EPS -8.8%

 

"In other words, if your friends are still “backing out energy” and levered long US Equity beta, they’re a lot more exposed to rates crashing, Yield Spread compressing, and the Financials (XLF -11% YTD) than they’ve ever been," Hedgeye CEO Keith McCullough wrote in the Early Look this morning.

 

Here's the sector performance breakdown:

 

Beware The Coming Crash: An Earnings Season Reality Check - sector performance 2 23

 

Watch out for this precarious earnings setup. "Unless it’s different this time, US stocks always crash (greater than 20% decline from peak) once corporate profits go negative (on a year-over-year basis) for two consecutive quarters," McCullough writes.

 

Commit the chart below to memory.

 

Click to enlarge.

Beware The Coming Crash: An Earnings Season Reality Check - EL profits

 

... And get the heck out of stocks. 

 



Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more