A False Recession
With the S&P 500 down 10.5% through February 11th, questions about the health of the economy seem to intensify daily. The concerns typically go something like this: If the financial markets are a predictor of where the economy is headed, has the plow horse finally lost traction? Is a recession looming?
An old joke says the stock market has predicted 19 of the last five recessions. Stocks don’t always lead the economy, and earnings clearly don’t show that things are awful. With 375 S&P 500 companies having reported Q4 earnings as of February 11th, 70.7% have beat estimates, although earnings are down 5% from a year ago it’s all due to just one sector, energy. Of the 375 companies that have reported, only 23 of them have been energy. Excluding those 23 energy companies, earnings for the other 352 companies are up 1.0% from a year ago. So, for those claiming the market drop is due to declining earnings, it seems more like an energy story than an economic one. It’s plow horse earnings growth outside of energy, but it’s earnings growth.