by BCA Research
If we had conviction, that the profit contraction was near a reversal, subdued, economic activity would be less worrisome. But in this cycle, corporate balance sheets are stuffed with excess leverage, underscoring that the risk of hitting stall speed is elevated.
[…] Without balance sheet flexibility, depressed cash flow generation means that companies could be forced to take growth-sapping retrenchment measures. Seven out of the ten broad sectors are expected to show year-over-year profit contraction in the first quarter, a grim outcome.
Moreover, credit excesses extend beyond the corporate sector to investor positioning. Margin debt is near record levels in absolute terms and compared with GDP and/or market cap. Market cap itself is extremely stretched relative to GDP. Both are challenging previous secular market peaks.