The markets are primed for a very serious correction… possibly even a Crash.
Earnings are what drive stocks. Investors sometimes forget this during periods of speculative manias such as the one we’re experiencing today. But the reality is that there is no rational reason to buy a stock (company) other than to share it its profits via Earnings or Dividends.
With that in mind, consider that Earnings and Sales are both rolling over sharply. The below chart from Societe General illustrates this point nicely. Also note that we are rapidly approaching a period in which Year over Year changes in both metrics are negative.
Moreover, this is occurring at a time in which stocks have rallied far higher than earnings warranted.
Earnings Per Share or EPS leads stock prices as the below chart shows. Note the large divergence that occurred in 2007 at a time when EPS rolled over (EPS is the blue lines). We all know what came after this (2008).
Now look at the massive divergence occurring today (the right black square). It makes the 2007 divergence look small by comparison!
Stocks are more stretched than at any point in the last 10 years. At the very least we should see a 10-15% correction if not an outright Crash in the coming months.
And yet, 99% of investors will ignore the clear warnings today… just as 99% ignored the warnings in 2007 and 1999.
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Best Regards
Phoenix Capital Research