How To Spot Declining Corporate Earnings
Jeffrey C. Borneman | September 23, 2014
The chart below illustrates many things and none of them are good. Just at a glance, what is the biggest takeaway for investors?
The most glaring takeaway is that corporate profits are unsustainable with such a weak consumer (employment) base.
Said another way, and from the standpoint of investing capital: The DEMAND of goods and services represented by the S&P will fall commensurate with the consumer's willingness to spend on non-essentials. The decline in earnings will cause a rotation of investing capital into areas of firm and/or growing DEMAND. The bottom line (pardon the pun) of the graph represents a non-recovered economy which in the absence of a significant catalyst, can only continue downward - dragging non-essential earnings with it.
Corporate profits are sustainable until the consumer decides otherwise. That point of decision will mark the beginning of the rotation of DEMAND - when non-essential spending becomes purchasing for essentials only, and wise investors will want to address the coming rotation of DEMAND before it becomes apparent to all.
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