This Kind Of Earnings Recession Always Triggers A Bear Market
Jesse Felder | Jul 28, 2016 03:25PM ET
Knee-deep into earnings season and it looks like, as a group, corporate America still can’t find the end of its earnings decline since profits peaked over a year ago. What’s more, analysts renowned for their pollyannish expectations, can’t seem to find it either.
So I thought it might be interesting to look at what the stock market has done in the past during earnings recessions comparable to the current one. And it’s pretty eye-opening. Over the past half-century, we have never seen a decline in earnings of this magnitude without at least a 20% fall in stock prices -- a metric many use to define a technical 'bear market'.
In other words, buying the new highs in the S&P 500 today means that you believe “this time is different”. It could turn out that way yet history shows that sort of thinking to be very dangerous to your financial well being.
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