Here’s One Reason to Get Bearish

If you’re hunting for bearish data points, here’s an important one.

Starting in 1Q 2018, the profit outlook for corporate America is going to get increasingly difficult.

The reason why has everything to do with the U.S. economic cycle. During the domestic growth slowdown from 1Q 2015 to 2Q 2016, year-over-year GDP growth fell from 3.8% to 1.2%. S&P 500 earnings followed the broader macro economy. Earnings growth fell for five straight quarters starting in the second quarter of 2015. S&P 500 earnings then rebounded with the broader economy.

That makes for an increasingly tough set-up for earnings heading into 2018. “I would not want to be as long as we’ve been, or as aggressively bullish as we’ve been on all stock market pullbacks, ahead of Q1 reporting season in 2018,” says Hedgeye CEO Keith McCullough in the video excerpt above from a recent institutional conference call.

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The “comps” – the numbers against which year-over-year growth is measured – get increasingly tough going forward. Year-over-year earnings growth peaked in Q1 2017 at 14.5%. So watch out in 2018. We’re not there yet. But keep this concept in your back pocket.
The reason why has everything to do with the U.S. economic cycle. During the domestic growth slowdown from 1Q 2015 to 2Q 2016, year-over-year GDP growth fell from 3.8% to 1.2%. S&P 500 earnings followed the broader macro economy. Earnings growth fell for five straight quarters starting in the second quarter of 2015. S&P 500 earnings then rebounded with the broader economy.

That makes for an increasingly tough set-up for earnings heading into 2018. “I would not want to be as long as we’ve been, or as aggressively bullish as we’ve been on all stock market pullbacks, ahead of Q1 reporting season in 2018,” says Hedgeye CEO Keith McCullough in the video excerpt above from a recent institutional conference call.

The “comps” – the numbers against which year-over-year growth is measured – get increasingly tough going forward. Year-over-year earnings growth peaked in Q1 2017 at 14.5%. So watch out in 2018. We’re not there yet. But keep this concept in your back pocket.

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