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An Update On Earnings Season & Stock-Picking In #Quad3 - earnings cartoon 04.12.2016

From a factor exposure perspective, large-cap US equities have historically not been a rewarding place to be on the short side during periods of #Quad3 (i.e. an environment in which U.S. growth is slowing and inflation is accelerating). The caveat is that they aren’t explicit longs either.

An even bigger caveat is that we’re heading into a likely 2001-style corporate earnings recession that the Street has not modeled into expectations. (Note: So far, 79 of S&P 500 companies have reported aggregate year-over-year sales and earnings growth of 2.6% and 0.5% respectively. It's early but in 3Q 2018 S&P 500 earnings growth peaked at 26%.)

In short, #Quad3 is all about capturing peak rates of intra-Quadrant dispersion within equity indices and within sectors, as beta tends to trade in choppy/sideways manner. We saw this pattern really play out during the two most recent multi-quarter #Quad3 episodes (i.e. 2011 and from mid-2015 through mid-2016).

An Update On Earnings Season & Stock-Picking In #Quad3 - earnings

An Update On Earnings Season & Stock-Picking In #Quad3 - market edges