As for equities. it really is the irony of ironies that we would have seen the best
quarter since Q1 1998 for S&P 500 price performance (+12%) at the same time
that profit growth evaporated for the first time since the tail—end of the Great
Recession (consensus estimates are all the way down to a microscopic +0.6%
YoY pace). Perhaps a reality check is in order...
To be sure. there have been times when profits decline and the market
advances. But if we are going to ‘‘lay down odds". I ran the numbers and found
that the historical correlation between the direction of operating earnings and
the S&P 500 Total Return index is 86%...
The Economy is slowing fast as we move into Q2. The 5 point slide in the ISM export
orders subindex is an early indication that we can expect to see a negative trade
shock begin to hit the production data. The three-months-in-a-row slippage in the
ISM orders/inventory index is added cause for pause as far as the near-term
outlook for the U.S. industrial sector.