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Will the next quarter US corporate profits cycle be the death knell we have been waiting for?


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Every Bear market needs a trigger, as if what he have is not trigger enough...  This bull market is not driven by technical analysis but by sentiment and in a World of ever increasing central bank stimulus the markets seem to follow the models (stimulus = bull) without question.  Technical analysis shows us the stock indices are over heated but have they reach their peak already or not yet?  Difficult to say.  But what of Fundamentals?  Data releases are trumped by central bank press conferences these days but if you look at the real underlying fundamentals of the US economy you get a clear warning signal that the party is almost over.


The S&P has been going sideways since 2014, it will either make a fresh high and then drop or eventually keel over without a fresh high, I'm betting on the former but Brexit will dampen UK and EU markets so no fresh all time highs there (retrace only).  The charts seem to be pointing to a rally just now and that rally could terminate around the time of the next quarterly earnings reporting season, or more likely earlier than that as the markets get wind of another quarter of profits and growth decline and begin to position themselves.  A summer time peak is surely on the cards right?


Here is an except from this mornings Contra Corner:


The profits cycle peaked six quarters ago when S&P 500 reported earnings came in at $106 per share for the period ended in September 2014. In March 2016 reported earnings were $87 per share.


So profits are down by 18%, and even that has been flattered by upwards of $700 billion of share repurchases in the interim.


Likewise, almost every measure of the real business economy peaked at about that time, too. For instance, non-defense CapEx orders are down 12% since September 2014, rail and trucking shipments are off by 21% and 6%, respectively, and export shipments are down by 13%.


But the most comprehensive measures of economic activity—total business sales and the inventory/sales ratio—– tell the real story. Total sales are down by nearly 5% from their August 2014 peak, and the inventory sales ratio has climbed steadily higher into what historically has been the recession zone.


See the full with some interesting charts here:




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