The above link to FactSet's great discussion on S&P 500 margins, dated March 18, 2016, supports this blog's thesis from March 12, 2016, that Q1'16 will likely be the trough for year-over-year earnings declines for the S&P 500.
Frankly, the two go hand-in-hand really.
If margins improve, (and as long as revenue remains stable) earnings should improve as well.
My thesis (or educated guess really), based on studying S&P 500 earnings data for 15 years, was based on two principles:
1) Commodities are bottoming, including crude.
2) The dollar will continue to gradually weaken over 2016, even with rate hikes.
Leaps of faith for sure, but commodity and dollar sentiment keep me leaning against the crowd.
My position could very well be wrong too.
My own forecast for 2016's S&P 500 return of 10% or more could be wild-eyed fiction and get me kicked right in the teeth, but the job market's strength continues to be an unambiguous positive in my opinion.
Jeff Miller's latest post at A Dash of Insight showed a chart of the declining labor market slack. Jeff does seminal work every weekend over at "A Dash". I actually think a little inflation, whether commodity or wage-induced, would be good for the US economy. It will be interesting to see CPI data with this jump in crude to $40 - that will eventually show up in gasoline prices I would imagine.
Even though crude oil and other commodity prices are getting shelled today, it looks to me like the 5-year commodity bear market is coming to an end. Like all major bottoms (and tops) it is a process.
Another anecdotal data point, which I use because it is earnings related, is that a number of companies I follow with February'16 quarter-end and have reported quarterly earnings, showed either strong growth, i.e. FedEx (NYSE:FDX), Oracle (NYSE:ORCL) or were not nearly as weak as expected, i.e. Tiffany (NYSE:TIF). What was impressive about FedEx was that they beat on revenue too. Very important. Nike (NYSE:NKE) missed on revenue. (Long FDX, ORCL, NKE)
All the commodity ETFs like crude oil (IYE, XLE), copper (NYSEARCA:JJC), Emerging markets (EEM, VWO) and Brazil (NYSEARCA:EWZ) are hitting their overhead 200-day moving averages. They are at key levels today. Technicals matter - we are long all these for clients and have room to buy more if needed. (Positions can change at any time, for many reasons.)