The prospects for excellent corporate growth deteriorate hand in hand with the US economy, and although executives can mask a one-off bad quarter (or two) with simple accounting tricks to improve earnings, one thing they cannot fudge is revenues. Fiscal Stimulus, although being openly discussed, is not being supported by the price of gold (GLD). Rate cuts are not cash infusions, and those take many months to work themselves through economies, but interest rates are already as low as they can go in the United states. Aside from printing new money, the Federal Reserve is out of bullets, and soon the printing presses will become inefficient as well.
Even with heavy printing and stimulus amounting to $2.6 trillion, the US economy is still fragile and it cannot stand on its own two feet. That weakness will continue to show this earnings season as some of the biggest companies on Wall Street report revenues that fail to show growth, but instead hint at contraction. This has started already, with Alcoa (AA) reporting lower revenues earlier in the week, but it will continue next week with Citigroup (C), Gannett (GCI) and Wynn Resorts (WYNN). Each of these is expected to report no revenue growth or lower revenue growth.
In this fragile economy companies can still use accounting tricks, but those cannot mask the top line results. Eventually it will prove true that the influence of stimulus is equally as bothersome as inflation was in the 1970s. Market historians will prove that investors were not willing to "pay up" for earnings due to inflation, multiples contracted, and something similar will happen now.
My longer term macroeconomic model, The Investment Rate, tells us that the economy is in the third major down period in US History, one that is positioned to be worse than either the Great Depression or the Stagflation Period of the 1970s, and no amount of stimulus can stop that from happening. It is natural for economies to weaken from time to time throughout longer term cycles, but that natural weakness is not based on policy decisions. That weakness is based on societal norms, and lifetime investment patterns. This is what economies are truly made of.
No matter what stimulus may be considered or enacted, they cannot stop this weakness from coming, and investors need to protect themselves from what lies ahead.