A Tale Of Two Growth Outlooks

Tyler Durden's picture

Just over a month ago, global earnings revisions were on the upswing (admittedly off markedly low levels); since then they have turned sharply lower to the worst levels in a year (based on Citi's Global Earnings Revision index - ERI). Critically though, as 'hope' is pinned on a steepening term structure as indicative of 'growth' and happy times ahead for stocks, the ERI has dramatically diverged from the yield curve. As Citi notes, it is evident that analysts are not at all convinced about the improvement in the growth outlook that this steeper curve has historically suggested. What is perhaps more worrisome for the "it's different this time" crowd is that the last time we saw this kind of dramatic divergence between global earnings and the US term structure was in the run-up to Lehman - and that did not end well...

 

Global earnings revisions typically track the US Treasury term structure very closely - both implicitly suggesting growth or no growth expectations...

 

But in recent weeks, the steepening of the US Treasury curve (growth - whether due to Fed Taper discussions explicitly reducing the flow or implicitly by the Taper meaning the Fed is more optimistic about the future - which has never ended well) has been entirely dismissed by the analyst community globally as earnings revisions have been slashed to their lowest in a year!

 

The last time we saw this kind of divergence was in September 2008...

 

And that did not end well...

 

Charts: Bloomberg