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CHART OF THE DAY: The Profit Cycle Peak Is In (An Economic Cycle Reality Check) - 10.10.16 EL Chart

The Chart of the Day above shows the peak in S&P 500 corporate profits (hit in the second half of 2014). As you can see, once the peak is in, there's no coming back as the top always predates the next recession (red bar in the above).

As Hedgeye CEO Keith McCullough wrote in today's Early Look (our daily morning newsletter to subscribers) Wall Street remains way behind the curve in understanding our call on the peak in corporate profits. But reality continues to be priced into markets.

"Last I checked Wells Fargo (WFC) still has to report their new business reality on Friday... And I guess that brings me back to trying to find a bottom in the US corporate profit cycle. As you can see in today’s Chart of The Day, it’s coming off its all-time highs. And… for those who tried to “buy the bottom” during the last two economic cycle recessions (2000 and 2008), they better believe in the concept of cycles."

Getting ahead of major shifts in the economic cycle is how investors generate excess returns and avoid massive drawdowns. So just to recap, here's how the U.S. economic cycle has played out thus far…

  • 2H 2014: Income growth, corporate profits, and S&P 500 margins peak;
  • 1H 2015: Employment growth, consumption growth, consumer confidence, business confidence, net domestic investment and forward multiples peak;
  • 2Q/3Q 2015: Global equity markets peak;
  • 4Q 2015: M&A peaks and the bankruptcy cycle and credit market dislocations begin;

(Click here to watch a brief video of Hedgeye CEO Keith McCullough discussing U.S. economic growth in "An Animated History of U.S. #GrowthSlowing.")

Bottom Line:

Stay ahead of economic reality or get run over. No matter Wall Street's latest permabull narrative, the U.S. economy is past peak.