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| | | Tuesday, November 1, 2016 | Issue #2922 |
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[Banned for 82 years] Now OPEN to Regular Investors
For the past 82 years, you've likely missed out on some of the biggest winners in the history of investing. Businesses like GoPro, which would have turned a $100 stake into about $133,000... Airbnb, where a $100 stake from 2009 is now worth $797,000... and Uber, which turned $100 into $1.25 million over the past 7 years. But you don't have to miss out anymore! Click here to see why . |
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Why Bears Are Wrong About the S&P Earnings Recession Matthew Carr, Emerging Trends Strategist, The Oxford Club
 I consider investing the ultimate search for truth.
Proper investing, anyway.
You look beyond the headlines. You do your research and dig for facts. Your mission is to separate fact from fiction and decide what is true reality - not just what's being sold.
The "earnings recession" is a perfect example. It's a term I've despised for almost two years now. Just a refresher, in case you need one...
The S&P 500 hasn't posted year-over-year earnings growth since the first quarter of 2015.
At face value, this seems menacing or foreboding. In reality, it's a waste of time for investors to concern themselves with.
As I've pointed out numerous times over the past couple of years, this is a sector-specific recession. Individual industries are weighing down the index as a whole.
For example, the year-over-year comparisons for the energy and mining sectors - as well as their various subsectors - are completely unfavorable.
Earnings in the energy sector alone have been falling 75%, 100% or more for the last several quarters. The price of crude fell from more than $100, all the way down to $26, before bouncing back up to $50 per barrel. The reality? If you remove the energy sector from the S&P earnings picture, we've actually had earnings growth. The earnings recession is a result of how indexes are weighted.
In The Oxford Insight - a premium e-letter that goes out to Oxford Club Members | "Your mission is to separate fact from fiction and decide what is true reality - not just what's being sold." | |
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- I predicted that the earnings recession would be over once we got into the third and fourth quarters of 2016. My logic was simple. The year-over-year comparables would become more favorable.
So far, that's certainly the case.
We had 25 straight months of year-over-year declines in the average spot price for West Texas Intermediate (WTI) crude. It wasn't until August (the middle of Q3 2016) that this trend finally ended.
The average spot price of WTI in August 2015 was $42.87. This year, the average was $44.72. That's a year-over-year gain of 4.32%.
And as we head deeper into the fourth quarter - and into the first quarter of 2017 - the comparables get even better. Because, don't forget, WTI averaged $42.44 per barrel in November 2015... $37.19 per barrel in December 2015... and $30.32 in February 2016.
Today, it's trading around $48 per barrel.
It doesn't mean the declines are behind us for the energy sector. (We're not out of the woods yet, anyway.) But it does mean the sector isn't a headwind for S&P earnings.
Which means, once again, all the bears and naysayers were wrong.
At the end of September, expectations for the S&P 500 were for a 2.2% year-over-year decline in earnings. Bearish sentiment has reigned supreme this year.
But, like I said, reality is often much different.
As of last Friday, 58% of S&P companies had reported earnings. Of those, 74% beat earnings expectations. And so far, S&P earnings are up 1.6% year over year.
Again, that's a 1.6% gain - not the projected 2.2% loss forecast just a few weeks ago - an additional $10.1 billion no one was expecting.
But - if we removed the energy sector from the picture - once again, the picture is a lot different. Take that sector out of the equation, with its 64.6% decline in earnings, and S&P earnings would be up 4.9% year over year at this point.
So, for energy, there are still declines. They just aren't as big as they have been.
Going forward, the picture gets even better. Meaning that the whole reason for the earnings recession in the first place is fading.
For the fourth quarter, S&P earnings are expected to increase 4.6%. And that's because energy sector earnings are expected to be down just 0.1%. That's a huge difference from the 64.6% decline the sector is expected to report in our current third quarter earnings season.
And next year, earnings for the energy sector are expected to increase more than 339%.
The earnings recession has been a misnomer. It's the product of one sector imploding - benefiting almost all others - and being heavily weighted in an index.
In reality, the earnings recession amounted to "energy sector earnings are in the toilet."
If you dug deeper, looking beyond the headlines in search of the truth, you would have recognized this a long time ago.
And you would have understood there was nothing to fear.
Good investing,
Matthew | | Click here to post a comment on InvestmentU.com |
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Abandoning the USA Like Rats on a Sinking Ship
 Right now, there's a list of 25 countries agreeing to take "revenge" on the USA due to a certain American economic practice.
Even allies Canada, Britain and Qatar appear on the list! If you think "friends" turning their backs on us is bad... you won't believe what our enemies are up to. Full details here. |
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In the second part of his piece on value investing, Alex explains how to analyze a company properly so you can avoid the value trap. Read On... |
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Having an exit strategy is everything. But before you make any moves, it's crucial that you ask yourself these two important questions. Read On... |
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In today's edition of Investment U Plus, readers are discovering one of Matthew's recent Prime System Trader picks - a stock that's been known to take off each November. To find out how you can get all the details, Read On... |
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The Oxford Club is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that although our track record is highly rated by an independent analysis and has been legally reviewed, investment markets have inherent risks and there can be no guarantee of future profits. The stated returns may also include option trades. 
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