Deutsche Warns Companies Will Sharply Cut 2017 Earnings Expectations Next

Yesterday, Deutsche Bank's equity strategist David Bianco joined Goldman's David Kostin in warning that Friday's selloff was just the beginning, predicting that an "8-10% decline in the S&P looms" as a result of "manic" levels of PE relative to VIX, and various other indicators confirming just how stretched the market has become, coupled with unprecedented complacency and a record low VIX. 

 

But it's not just the market that DB is worried about: in a separate report, Bianco also warned that "3Q S&P EPS results will not impress" and that companies will be forced to lower 2017 expectations.

This is why Bianco thinks the E in PE is about to slide even more:

"Our profit indicator suggests 3Q S&P EPS had little or no growth from 2Q. We expect 3Q S&P EPS to be near $30 or down 1% y/y.

 

 

Unless oil climbs strongly, quarterly S&P EPS is likely $30-31 through 1H17.

Bianco also points out some key macro indicators which in the recent month have seen a dramatic swoon as the US economy once again appears on the verge of a recession:

 

Bianco's conclusion: "We expect 3Q reporting to lower btm-up 2017 EPS most at Financials, Staples, Con Disc and Industrials. The general expectation for 2017 S&P EPS will fall from $130 to $125-130."

This should not come as a surprise to regular readers: just on Friday we warned that "A Flood Of Profit Warnings Just Crushed The "Earnings Recovery"." In the days ahead expect the flood to become a full-blown deluge, now that the seal has been broken, and more companies feel liberated to tell the truth, especially with the Hanjin bankruptcy providing a convenient backdrop on which to blame the "unexpected" collapse in Q3, Q4 and so on EPS.