by Matthew Kerkhoff
Over the past five quarters, corporate profits have been shrinking, but the stock market remains near all-time highs. This divergence can’t persist forever, and will eventually break one way or the other. The question is, which way will things go?
At the moment, it appears that earnings could be reversing course, which would provide a very helpful tailwind for equity prices.
Before we get into the current earnings picture, it’s important to understand just how bad earnings growth has been over the last five quarters. We can see this in the chart below, courtesy of FactSet.