EPS Growth
Recent weeks have led to a fairly significant drop in stock valuations, with many expert analysts struggling to figure out exactly why it’s happening. You’ll hear them cite the weather, or market overreaction, or any number of reasons for why stocks have seen their share prices reduced and why they’ll be rebounding in the near-term. What they won’t show you on mainstream financial channels is what’s really happening behind the scenes. Forget about all the minute-by-minute noise for a moment and take a look at the following chart. It gives a very simple overview of earnings growth trends for stocks listed on the S&P 500 on a quarterly basis. Last year saw what analysts would call fairly robust growth, and they had no problem citing these numbers for evidence of economic recovery. We’re curious what they’d call it now, considering this chart shows a massive collapse in earnings per share growth across the board. Pay close attention to that yellow line, which indicates growth (or lack there of) for the first quarter of 2014. According to Zero Hedge this is a Flashing Red Warning as earnings growth plunges to its lowest levels since 2012:

While the so-called “experts” were adamant in repeating that one must ignore all Q1 economic data (because of harsh weather you know), one thing the same “experts” pounded the table on was the earnings growth in 2014 which confirmed that the Fed was correct in tapering and that the corporate sector was well on its way to achieving “escape velocity” and a stable recovery. And then this happened. Most people, when you ask them how the economy is doing, will point to the Dow Jones, NASDAQ and S&P 500 as evidence of a healthy recovery. What the majority of those people fail to look at is the underlying valuations for the stocks within those indexes. If you are an investor and hold stocks, or are thinking about jumping in because this latest “correction” is about to take a turn for the better, we direct your attention to this absolutely critical piece of information regarding price-per-earnings from Karl Denninger of Market Ticker. More