Since the Fed made its shocking no-call last week on its decision whether to raise interest rates, analysts have been not only questioning the true state of the economy, but also have been insinuating that the central bank’s credibility may be completely shot. But as we look at new data coming out on corporate earnings, especially those on the S&P 500, their declines year over year (yoy) coupled with global and domestic stock markets being in sudden free fall may have been the reasons why 11 months of interest rate rhetoric was instantly thrown out the window.
Profit growth for the S&P 500 companies is at its weakest point since 2009. That’s because, in fact, there isn’t any profit growth.
S&P 500 earnings for the first half of the year are expected to show a 0.7% contraction compared to a year ago, according to numbers from FactSet research. Growth in the first quarter was a meager 1.1%, but the second quarter is more than offsetting that, expected to contract at a 2.2% rate, FactSet estimates. The last time the S&P 500 saw a year-over-year decline for the first half of a year was 2009, when earnings positively cratered at the depths of the global recession, down 30.9%. – Wall Street Journal via Zerohedge
Since October of last year, the Fed had been hinting at their desire to raise interest rates after ending QE3. But as each subsequent quarter and FOMC meeting came and went, their window of opportunity to implement a rate rise closed sharply after the stock markets topped out in May.
Yet perhaps the jumping on the Fed Cred bandwagon might have been a bit hasty since raising rates in a recessionary environment is the worst thing they could have done. And judging by the markets reaction after the announcement just three trading days ago, what should have been a rally in the stock market has turned into a validation of a bear market, and a sure sign that deflation is here to stay unless the central bank sees fit to re-inflate quantitative easing.
It is a given that since at least 2008, the Fed’s primary job has been to bail out the banks, and protect the elite as they grew richer thanks to ZIRP and QE. But as corporations have continuously lowered the bar on their quarterly earnings, and bought their own stock much more than growing their businesses, the markets are finally showing their true selves, and pundits are no longer mentioning the word recovery in their analysis.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.