As we have mentioned many times before here, the stock markets are not the economy and have little to do with the overall strength of the nation’s fiscal and productive capacity. And while Wall Street continues to parade every single tick up that has just now brought equity markets back to where they were before their January declines into Bear market territory, all one has to do is to have listened to Janet Yellen on Tuesday to know that the facade of the Dow and the S&P is in complete opposition to the strength of the companies those stocks represent.
US corporate earnings are projected to shrink further in Q1 after a lackluster performance in second half of 2015 as the Federal Reserve’s tightening policies and a stronger dollar have negatively affected overseas revenues of America’s enterprises. This time, major US financial institutions are in focus: as earnings season nears, US banks are expecting a massive decline in revenues from deals, including trading, investment and international lending.
Should Q1 turn out more frustration for corporate America, the period would be a third consecutive quarter of losses in profits, meaning the overall US economy is nearing an 80% chance of tumbling into a recession this year (two straight quarters of corporate losses historically precede a recession). – Sputnik News
It was reported this week that the primary reason for the rise in the stock markets was due to company buybacks and the removal of the Fed’s Damocles Sword of four rates hikes that were expected to occur in 2016. In addition, a massive decline in the dollar over the past two weeks has also helped equities as people illogically believe that this will help exports when in fact it will not since the entire global economy is already in recession, and consumers are at the end of their fiscal ropes.
Too many factors are directly pointing to an economic and financial collapse taking place sometime in 2016, or perhaps even into 2017, but like in 2007-08, the pundits and analysts on Wall Street will never admit there is a problem until it already upon them. And when brokers like JP Morgan and Bank of America both are telling their clients to sell into every rally, that is the ultimate warning sign that what we have seen in equities since the middle of February are both an anomaly, and a last chance to re-position yourself for the next leg down.
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.