Corporate profitability has been a standout performer in this earnings cycle, with double digit growth in the last eight quarters. This earnings momentum has served as a key source of support for the stock market.
But all cycles eventually mature and turn around. This earnings cycle appears to be maturing in a backdrop of growing anxieties about the global economy. Europe is heading towards a recession and the extent of the Chinese slowdwon remains uncertain.
With about 40% of the earnings for the S&P 500 companies coming from international markets, it is doubtful that this worldwide slowdown will have no negative impact on corporate earnings.
Are the recent profit warnings from companies like DuPont ( DD ), Texas Instruments ( TXN ), Intel ( INTC ) and others pointing towards a materially deteriorating earnings picture? Or we can chalk all of these off to company specific issues unrelated to each other?
I don't think the earnings picture is materially deteriorating, but what do you guys think? Are current consensus earnings expectations adequately reflecting this worldwide slowdown?
-0.72