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:
- 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.
