Editor's Note: In light of Amazon's (AMZN) complete shellacking on growth worries, we thought we would revisit this prescient excerpt from our Market Edges note sent to subscribers on 10/1. Market Edges is our weekly Macro newsletter featuring big picture financial market trends with investing implications.
Let’s talk about our call on Cyclical Peaks. This is how you do modern day risk management. This is about how to construct your portfolio and where not to be when the crowd is there.
This theme is born out of a lot of what we discussed in terms of the run-up in U.S. domestic economic growth and inflation. Those two things worked together combined to perpetuate the cyclical peak in corporate profits and corporate profit margins. But also what we think is the cyclical peak in some of the relevant style factors that benefited from the concomitant runup in those factors.
Earnings are at a glaring cyclical peak. We highlighted in the yellow boxes aggregate S&P 500 earnings expectations for the coming quarter in Tech. The Old Wall is expecting 41.9% year-over-year earnings growth for Tech stocks. And you wonder why Semis, which are the most cyclical segment of Tech stocks, are imploding.
They can’t guide up on those sky-high expectations. They are now guiding down.
In fact, of the first 98 companies that have guided on Q3, 76% of them have guided down. Future expectations are very important to watch.