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Investment Strategies: From Wall Street to Main Street Hingham MA

Earnings Recessions and Stock Bear Markets

By Craig Hartnett Hingham MA

An “earnings recession” is two consecutive quarters of negative earnings growth for the S&P 500 index. Two main factors are causing the United States to be close to an earnings recession: the collapse in oil / commodity prices and the exceedingly strong US dollar.

The collapse in oil prices has led to major earnings declines for companies in the energy sector. The weakness in commodity prices more broadly has caused other sectors including basic materials to experience earnings declines in 2015.

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The strong U.S. dollar has also adversely impacted the earnings of many U.S. multinational corporations.

In the 2nd quarter of 2015, the S&P 500 earnings were forecast by analysts to decline but barely rose at 0.8%. In the 3rd quarter 2015 earnings are forecast to decline 4%.

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Of the 12 earnings recessions since 1960, the stock market has had a correction or bear market 11 out of the 12 times. However, since 1974 there have only been three occasions where there was an actual earnings recession and not a simultaneous economic recession. Each time, the S&P performed much better and there was not a bear market in any of these earnings recession only periods. The strength of the U.S. economy currently makes an economic recession and therefore a bear market unlikely.

This is meant to provide perspectives on the stock market and is not a recommendation from Craig Hartnett to investors in Hingham MA and the South Shore community.

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