Earnings Continue Decline
High Concentration – A handful of companies, the five largest tech companies on the S&P 500, have held up earnings overall. Inflation has broadly affected corporate earnings, take out those five largest companies and earnings fall to -6% year over year for Q1 2024. Hardly bullish for ‘the market’.
Concentrated earnings have historically been emblematic of late cycle behavior.
Earnings Estimates Have Steadily Declined – Wall Street told investors that earnings will broadly rebound in 2024. Anything but – earnings results continued to slip. The recovery in stock prices has been driven by an expectation that the Fed will cut rates seven times (isn’t happening), that artificial intelligence will drive earnings (it has for a narrow set of early-stage companies but not for the market broadly), and a rebound in earnings (which is not taking place).
Proxy for U.S. Economy – Russell 2000 Index – Small Cap Stocks – Appollo Group, the U.S. investment manager, put out research in March 2024 that outlined that 41% of Rusell 2000 companies are unprofitable. 99% of the companies in the index are based in the U.S., the index is a proxy for U.S. domestic growth [small cap stocks derive almost all of their revenues domestically]. Decades of zero interest rate policy and being fed stimulus from an ever more indebted U.S. government, have kept alive companies that should have long ago gone out of business. Earnings are going in the wrong direction.
LPL 584101-1
DEFINITIONS
Apollo Global Management – is an American private equity firm.[2] It provides investment management and invests in credit, private equity, and real assets.[3][4][1] As of 2022, the company had $548 billion of assets under management.
Bloomberg - Bloomberg provides financial software tools and enterprise applications such as analytics and equity trading platform, data services, and news to financial companies and organizations through the Bloomberg Terminal (via its Bloomberg Professional Service), its core revenue-generating product. Bloomberg L.P. also includes a wire service (Bloomberg News), a global television network (Bloomberg Television), websites, radio stations (Bloomberg Radio), subscription-only newsletters, and two magazines: Bloomberg Businessweek and Bloomberg Markets.
EPS – Earnings per share (EPS) is a figure describing a public company’s profit per outstanding share of stock, calculated on a quarterly or annual basis. EPS is arrived at by taking a company’s quarterly or annual net income and dividing by the number of its shares of stock outstanding.
S&P 500 Index - The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90. The index is a capitalization weighted index of the 500 large companies listed on various stock exchanges (such as the NYSE or NASDAQ). The S&P 500 was developed and continues to be maintained by S&P Dow Jones Indices, a joint venture majority-owned by S&P Global. The S&P 500 differs from the Dow Jones Industrial Average and the NASDAQ Composite index, because of its diverse constituency and weighting methodology. It is one of the most followed equity indices, and many consider it one of the best representations of the U.S. stock market.
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