Blog Single Post

An earnings recession is defined as lower quarter over quarter earnings for two consecutive quarters.  U.S. companies have now been in an earnings recession for the past six quarters.  However, based on third quarter earnings reports, it appears that the earnings recession may be over.  This is a strong positive for the stock markets because, fundamentally, the markets only care about one thing, and that is strong earnings.  If a company is expected to earn more income this quarter than last quarter, it is likely that its stock price will rise.  The opposite is also true.  Financial analysts have been somewhat dumbfounded that the U.S. stock market has continued to rise despite the U.S. being in an earnings recession.

The bottom line is that the earnings recession is over or will be over soon.  This should provide a strong tail wind for the financial markets in general and for stock prices in specific.