The Ugly Truth About Where The 2nd Half Earnings Growth Miracle Is Supposed To Come From

Tyler Durden's picture


The S&P 500 continues to make higher and higher, more record-er highs predicated, as FactSet notes, on the faith in soaring expectations for much higher earnings growth for the index in the second half of 2014. Combining the reported earnings for Q1 and the estimated earnings for Q2, the first half (1H) blended earnings growth rate for the S&P 500 is 3.7%. However, combining the estimated earnings for Q3 and Q4, the second half (2H) estimated earnings growth rate jumps to 9.9%. Given this expected improvement in the overall earnings growth rate, which sectors and companies are projected to see the largest turnaround in earnings growth in 2H 2014 relative to 1H 2014? (Spoiler Alert: the answer should make you nervous).

As FactSet reports,

Overall, nine of the ten sectors are projected to see higher earnings growth in 2H 2014 compared to 1H 2014. While the Telecom Services sector is expected to report the highest earnings growth of all ten sectors at 30.8%, it is not predicted to report the sharpest rebound compared to 1H 2014. This growth rate of 30.8% only reflects a slight improvement over blended earnings growth of 26.7% for 1H 2014.

The sector expecting the largest overall turnaround in earnings growth in 2H 2014 compared to 1H 2014 is the Financials sector. This sector is projected to see earnings growth of 15.5% in the 2H of 2014, compared to a decline in earnings of 2.7% in 1H 2014.

*  *  *

This miracle hockey-stick save for financials - upon which the entuire S&P 500 index is now so dependent upon - has one small (very large) problem. Financials will not make this up via lending (or NIM hopes from a dfream of steepening curves - which have been shown to be a fallacy in the last few years); it will have to come from trading revenues... and that means one thing...

Volatility has to rise...

So in order for financials earnings to explode as is priced-in to the S&P 500, the market itself must experience notably more volatility... Be careful what you wish for.

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Tue, 06/24/2014 - 13:41 | 4889914 Racer
Racer's picture

Simple.... as ZH has already pointed out, companies simply just borrow more money and buy more shares back... get 30% "growth" per share, easy as printing toilet paper, er dollars

Tue, 06/24/2014 - 13:57 | 4889962 CH1
CH1's picture

No miracle is necessary - just a promise of one.

This is a confidence game in the literal sense... and Joe Average WANTS to be the sucker.

Tue, 06/24/2014 - 14:16 | 4890030 max2205
max2205's picture

print up some MOAR earnings

Tue, 06/24/2014 - 14:21 | 4890057 idea_hamster
idea_hamster's picture

“[I]n order for financials earnings to explode as is priced-in to the S&P 500, the market itself must experience notably more volatility.”

Oh, no – it’s much better than that.

Why couldn’t all the banks simply sell short option straddles on the low-vol market?  They could sell both up- and down-side insurance on every ticker symbol until they make their bonus numbers.

After all, it worked for Nick Leeson and Barings Bank in Singapore...until it didn’t. 

Tue, 06/24/2014 - 14:55 | 4890234 Pool Shark
Pool Shark's picture



"The sector expecting the largest overall turnaround in earnings growth in 2H 2014 compared to 1H 2014 is the Financials sector."

Tue, 06/24/2014 - 13:41 | 4889919 ParkAveFlasher
ParkAveFlasher's picture

So, should I sell my Prospector Pete's Silver Mining Corp shares and buy a triple-VIX ETF?  Because I need fast, cheap, and easy!

Tue, 06/24/2014 - 14:16 | 4890029 MrSteve
MrSteve's picture

Faster, Easier, Less Expensive!  is what you want..


...and is way more continental, there, I fixed it for ya!

Tue, 06/24/2014 - 13:42 | 4889920 SmilinJoeFizzion
SmilinJoeFizzion's picture

Is that the vix in your pocket or you just happy to see me

Wed, 06/25/2014 - 01:08 | 4892180 Whootie_who
Whootie_who's picture

VxxViagra for two!

Tue, 06/24/2014 - 13:44 | 4889928 astoriajoe
astoriajoe's picture

When did earnings start to matter?

Tue, 06/24/2014 - 13:45 | 4889929 Dr. Engali
Dr. Engali's picture


I think we need to start a Zero Hedge 501C3 and start taking up donations for the great underwear crisis:

Homeland Security Seeks Thousands Of Pairs Of Underwear For Detained Immigrants

Do it for the children.

Tue, 06/24/2014 - 13:47 | 4889942 JRobby
JRobby's picture

WalMart has had that contract for over 15 years now

Tue, 06/24/2014 - 14:30 | 4890110 WillyGroper
WillyGroper's picture

Don't worry. I'm sure the Oral of Omaha has got the asses of the masses covered w/his "Fruit of the Loom". 

Tue, 06/24/2014 - 15:48 | 4890474 odatruf
odatruf's picture

I always thought his was Fruit of the Loon.


Tue, 06/24/2014 - 13:45 | 4889934 ENTP
ENTP's picture

Earnings don't have to matter when you can increase the S&P multiplier by forcing people to chase yield.

Tue, 06/24/2014 - 13:48 | 4889943 youngman
youngman's picture

Whats the next IPO...I am in..that is where the money is..

Tue, 06/24/2014 - 13:53 | 4889958 ENTP
ENTP's picture

This is always easy to find:

1.  Go to the Google Play or Apple App store.

2.  Go to "Free Apps"

3.  Look at the Top Downloads and evaluate if its reasonable that the creating party would ever make money.

4.  If the answer is no, there's your IPO!

Tue, 06/24/2014 - 13:50 | 4889947 Flakmeister
Flakmeister's picture

Italy is about to bite the dust...

Tue, 06/24/2014 - 13:58 | 4889963 fonzannoon
fonzannoon's picture

and they also got bit.

Tue, 06/24/2014 - 14:07 | 4889992 Flakmeister
Flakmeister's picture

Suarez thinks he's McGruff or something....

Tue, 06/24/2014 - 13:59 | 4889966 CH1
CH1's picture

Italy is about to bite the dust...

Please define "about." Been waiting for them or Japan to bite the dust for some time now.

Tue, 06/24/2014 - 14:06 | 4889986 Flakmeister
Flakmeister's picture

Japan will likely be at around 5:30 EST...

Tue, 06/24/2014 - 14:35 | 4890152 walküre
walküre's picture

So who will be the last one standing on July 13th? The US? Hardly! LOL

Tue, 06/24/2014 - 15:12 | 4890308 Flakmeister
Flakmeister's picture

The USD has a pretty good chance of winning the FIAT, not FIFA, World Cup....

How could you not take Brazil?

Tue, 06/24/2014 - 15:59 | 4890511 walküre
walküre's picture

Mexico will take the cup. Cue the Mariachi band.

Tue, 06/24/2014 - 13:55 | 4889953 Atomizer
Atomizer's picture

The lack of ACA and global warming fears. Sorry, it's now called climate disruption. If Obama and his NGO's were living in a 3rd world country. They would already be standing in a firing line. 

Question, how many lies does it before the global community turns its back on a lying negro fool?

Tue, 06/24/2014 - 15:21 | 4890348 Flakmeister
Flakmeister's picture


May 2014, hottest May on record...

March to May 2014, 2nd hottest on record (2010 was the hottest)....


Every decade since the 1950s has been warmer than the previous

9 of the 10 warmest years have occured since 2002 despite a weak solar cycle and prevailing La Nina conditions...

Tue, 06/24/2014 - 15:59 | 4890515 walküre
walküre's picture

I sure hope so. I like it hot! The utility companies can suck it!

Tue, 06/24/2014 - 19:26 | 4891252 shouldvekilledthem
shouldvekilledthem's picture

"Global warming" have been used to reflect the long term effect of pollution (which is easily verifiable).

Considering how interconnected and complex this system is, the trends can vary widely from region to region so that's why they changed the name to "climate change" because "global warming" is quite confusing for the simpletons.
In layman terms:

The fucking retarded humans pollute and exploit our planet because of money, power and laziness without thinking about the consequences. 

Tue, 06/24/2014 - 14:03 | 4889973 Cognitive Dissonance
Cognitive Dissonance's picture

"Hey Rocky. Watch me pull a rabbit out of my hat." - Janet Yellen

Tue, 06/24/2014 - 16:31 | 4890636 RockyRacoon
RockyRacoon's picture

Better a flying squirrel than a raccoon!

Tue, 06/24/2014 - 14:15 | 4890027 Schmuck Raker
Schmuck Raker's picture

"Release the Loan Loss Reserves!"

Tue, 06/24/2014 - 14:17 | 4890038 buzzsaw99
buzzsaw99's picture

don't laugh. when you are forced to buy carbon credits from the squid you won't think it's so funny.

Tue, 06/24/2014 - 14:34 | 4890139 walküre
walküre's picture

Iphone 6 sales will fix it all.

Tue, 06/24/2014 - 17:21 | 4890842 homiegot
homiegot's picture

It will be the last.

Tue, 06/24/2014 - 14:38 | 4890164 ptoemmes
ptoemmes's picture

Will stock buybacks help?  The financial sector loans the funds to the coporations to do the buybacks...problem solved.

This is getting too easy.

/sarc off

Tue, 06/24/2014 - 15:04 | 4890283 Bemused Observer
Bemused Observer's picture

They desperately need the retail investor to pile back into that market. That's what all this is about...the huge fake 'bull run', the fake numbers showing we're in recovery, the daily "New Highs" announcements...
Of course, that retail investor has no money, so home prices must be driven up to where there is again equity to tap, the 'wealth effect'. But they aren't exactly lining up for home equity loans. In fact, they are taking money out of the market to pay bills.
So, lets throw some obstacles in their paths, make it a little harder to pull their money out. Let's keep saying that the losses of 2008 have been recovered, and then some, so they see the wisdom of staying invested even when things go down, and remind folks that those who sold are the ones who suffered loss.
And let's resurrect an old favorite from the 80's...a 2014 version of Robin Leach's Lifestyles of the Rich and Famous...we'll call it Secret Lives of the Super Rich. This will help keep investors eyes on the ball.
They are trying SO hard to recreate the environment of years ago. I suppose they are trying to get us all back into the mindset we had then. But it's sad, really. Like a middle-aged mother who keeps her adult child's room the way it was when they were 5, because she desperately wishes she could go back to those days. But Junior isn't coming back home to live...he has his own house and family, and to be honest, he's been wondering if Mom might be getting a little dotty in her old age, and has been making plans to put her in a home.

Tue, 06/24/2014 - 17:19 | 4890837 homiegot
homiegot's picture

Folks like me won't be any help. I buy 70s vintage audio/stereo equipment (the only era in audio that matters) and scour thrift stores for quality made goods others think are useless. Buying the shit being offered today is worthless. I say let retail die an agonizing death. Buy used shit and fix it up.

Tue, 06/24/2014 - 18:20 | 4891033 Bemused Observer
Bemused Observer's picture

Me too. I shun retail, I can't even STAND to be in a typical store. That crap gives me the heebies.
Now, put me in a large rummage sale, and you will see some serious shopping...and you have to know how to do a 1$ bag sale. So many make the mistake of grabbing and shoving into the bag, but the strategy is to take your time and roll the garments, then 'stack' them inside the bag as you go along. You will fit 5 times as much into that bag, and the "grabber and shover" will be hung up with rearranging as you walk on by to check out.
And I can't remember a single time I ever went into a WalMart and found anything worth considerably MORE than what I paid. But I nearly ALWAYS do at yard and rummage sales. In fact, I usually get at least one or two things that sell on Ebay for MORE than my total spent that day. Making everything I get free, sometimes PAYING me for that stuff.
No one will do that at the Mall of America.

Tue, 06/24/2014 - 15:17 | 4890327 Dr_D
Dr_D's picture

Thought military for sure - only thing that remotely would have made sense...

Tue, 06/24/2014 - 16:36 | 4890651 I Write Code
I Write Code's picture

The Fed has a new 3D printer to produce those trillion dollar coins ...

Tue, 06/24/2014 - 17:16 | 4890827 homiegot
homiegot's picture

All those illegals on the border should boost our GDP. I'm long Hanes underwear.

Tue, 06/24/2014 - 18:23 | 4891043 TeethVillage88s
TeethVillage88s's picture

2H Financials Growth

Federal Crisis, National Crisis, Fiscal Spending Related to Border Problems, Illegal Immigrant Civil requirements, Iraq War III

-Check DHS for Federal Funding
-Check FEMA Emergency Food, Medical, Quarantine, Shelters, Clothing
-Check Border Patrol & ICE & TSA
-Check Educational Funding for Federal Agency Gun Training, Tactical Training, Specialized Communication & Computer Equipment Training
-Check AMMO Consumption, Weapons & Comms & Tactical Computers, Military Grade Ballistic Protection, Armored Assault Vehicles, Radio & Satellite Equipment, Satellite subscription time
-Check Construction of Fusion Centers, Sub Fusion Centers, Listening Posts, Radio Towers
-Check Contracts for Service & Support of food, facilities & Walmart or AAFES for underground Shelters

-IRAQ III, War & Logistics Support, Oil Truck Convoy Specialist, Oil Field & Refinery Security Contractors, Port Security Contractors, Iraqi Water & Power Security Contractors, Iraqi Quick Reaction Security Forces, Iraqi Transportation Contractors (Air, Bus, Limo, Auto, Shuttle), Defense Language Contractors, UN Language Interpreter services Contractor,

-Petroleum is a bankable Commodity, Financial Investment in Futures Markets, Shipping Industry, Insurance Swaps, Insurance of Shipload & Ships, Drilling Services, Oil & Gas Exploration

BUT OTHERWISE no Investment in US Domestic Policy or Infrastructure

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