Q: What’s one thing (really) bad for “stocks?”
A: Slowing earnings.
Here’s a related question.
What’s looking increasingly probable when third quarter numbers are reported?
You guessed it.
As Hedgeye CEO Keith McCullough explains in the clip above, when earnings go down, losses begin piling up. For the record, the market doesn’t require some seismic event like the 2008 financial crisis to hit stocks. Take a look at the earnings slowdown in 2015-16 for evidence.
“The average decline [from the 2015 peak to the 2016 trough] was minus-38% in the Russell 3000,” McCullough explains.
“There is a direct relationship revenues and profit margins slowing and people’s reaction to stocks. So, are you just going to buy stocks ahead of a slowing earnings season? I wouldn’t and that’s why I’m not.”
Watch the full clip above for more.