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."
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:
- Only 3 of 10 S&P Sectors have POSITIVE year-over-year EPS growth
- ENERGY (31 of 41 companies reported) has SALES -34%, EPS -74%
- 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:
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.