Surprise: GAAP S&P500 EPS Set To Decline 1.3% In 2014

One of the justifications pundits have been forced to use today to explain the unprecedented collapse in holiday spending, which as we noted yesterday, tumbled by 11% is that more and more consumers are simply purchasing items on line. Which is great... until one looks at the actual data which reveals a diametrically opposite reality, namely that shoppers spent an average $159.55 online, down 10.2% from $177.67 last year.

 

Facts are funny like that.

Which brings us to mass delusion #2: one thing which everyone takes for granted and as ironclad as Yellen's gospel, is that stocks are higher because profits are soaring. Which they are... on massaged paper. And then reality takes over again.

Recall that Q3 earnings, which were aggressively guided down over the summer, actually ended up surprising to the upside, leading the permabull to screech with joy at the unstoppable strength of US corporate profitability. Of course, that is because a more than equal reduction of Q4 2014 EPS consensus took place, as can be seen on the chart below.

 

However, one thing that nobody will mention, is that even net of the downward revision, corporate profits in 2014 were far, far worse than most expect. The reason? Non-GAAP adjustments such as adding back "one-time, non-recurring" items such as hundreds of billions in banking legal fees, tens of billions in stock-based employee comp, and other all too real expense items which in the New Normal are now a way of doing business.

What is the bottom line? Well, as of Q3, when adding the consensus number for Q4 EPS, we find that while non-GAAP EPS is set to rise by a healthy 6.6%, real rarnings, as in GAAP EPS, will actually decline by 1.3% in 2014, meaning that for yet another year, the only upside in stocks has been due to - thank you Fed - multiples expansion.