Trading Desk: The Earnings Recession Is Already Here

The banks have spoken. Now we’re looking to confirm an earnings recession is not only already underway but has been going on for six months now. For investors, that’s the recession that matters: deteriorating fundamentals.

And they are deteriorating. We’ll be lucky to get through this year with positive growth across the S&P 500. This is not fatal in itself. The last earnings recession dragged on through most of 2019 and was more a matter of trade war and tough post-tax-cut comps than anything that slowed the market down.

The danger is that the spots in the market you’re overweight are going to bear the brunt of the landing. Right now the buffer is mega tech and those stocks are prisoners of their own gravity. Tech earnings is mostly AAPL MSFT and will probably show a 9% drop this season. Communications is mostly GOOG META and a few streamers. We won’t be shocked if earnings there drop 25%.

AMZN is the real obvious weak link right now. CEO Jassy warning about “headwinds” for AWS is NOT good. Saying you won’t focus on the stock price is NOT good. He’s telling us to brace for impact. And meanwhile, my staff is getting discount offers on AWS events because they aren’t selling tickets. Avoid.

Every recession, earnings or otherwise, is unevenly distributed. There are hot spots and cold spots. Stay where the economy is hot. That means energy (XOM says thank you to OPEC) and there will be consolidation there as leaders figure out what to do with their windfall. PXD only the first whiff of that.

DAL not a great sign for consumer but CEO attitude great: far from the end of the world, overheated routes getting back to normal. But UAL LUV are rebounding fast. BA making the turn. Not a bad time for the industrials.

REITs doing well and the stocks are cheap. Otherwise, inflation is eating everyone else alive as demand finally hits a wall.