Chart Of The Week: Commodity Prices Vs. Corporate Earnings

Summary

  • Commodity crashes are typically associated with severe earnings contractions.
  • Current expectations for flat calendar-year operating results seem overly optimistic in the present environment.
  • A cautious outlook toward second-half earnings is advised.

Will collapsing commodity prices clobber U.S. earnings? In six out of seven cases since 1970, commodity crashes exceeding 20% year-over-year have corresponded with earnings contractions exceeding 10% year-over-year. The lone exception occurred in 1998 when earnings decelerated to zero growth without actually contracting.

S&P Chart

Given this track record, a cautious outlook toward second-half earnings is advised. While it’s true that correlation is not causation, history has a funny way of repeating. The current consensus for flat calendar-year operating results seems overly optimistic in the present environment.

By | 2015-08-14T09:18:51+00:00 August 14th, 2015|Categories: Market Strategy Report|Tags: , , |0 Comments

About the Author:

Mark Ungewitter is a Senior Vice President & Investment Officer at Charter Trust Company. He was formerly Director of Portfolio Management at Investors Bank and Trust in Boston, Massachusetts. He holds an M.S. from Bentley University and a B.S. from Massachusetts College of Liberal Arts. He is a member of the American Association of Professional Technical Analysts.

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