Chart Of The Week: Commodity Prices Vs. Corporate Earnings

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Includes: DIA, QQQ, SPY
by: Mark Ungewitter

Summary

Commodity crashes are typically associated with severe earnings contractions.

Current expectations for flat calendar-year operating results seem overly optimistic in the present environment.

A cautious outlook toward second-half earnings is advised.

Will collapsing commodity prices clobber U.S. earnings? In six out of seven cases since 1970, commodity crashes exceeding 20% year-over-year have corresponded with earnings contractions exceeding 10% year-over-year. The lone exception occurred in 1998 when earnings decelerated to zero growth without actually contracting.

Given this track record, a cautious outlook toward second-half earnings is advised. While it's true that correlation is not causation, history has a funny way of repeating. The current consensus for flat calendar-year operating results seems overly optimistic in the present environment.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.