Earning Impact on DJI Q2/Q3
Low to negative margin in earnings reports, Lay-offs/ increasing unemployment, an anticipated next wave of inflation and a global increase in purchase of dollar treasuries. Will culminate in a business as usual oscillation of DJI index.
However, as the year progresses company earnings will continue to diminish due to inflation. Along side consumer spending declines due to inflation. In nominal terms this will show as a relative increase or stabilisation in spending. But in real terms the drop in consumer purchasing power will further impact movements on inventories. Subsequently a real decline in consumption. We will not see this impact upfront as indicated in the previous year the exuberance of inventory purchases created a glut as consumer consumption slowed. Thus impacting earning due to companies over spending on diminishing demand. However there still remained a stimulus and inventory glut in the economy. Potentially heralding a longer 9-15 month slow decline as experienced in the post pandemic stimulus era. The sharp decline illustrated above is only the result of exuberant markets who will be hard pressed not to try anticipate the decline, thus resulting a self fulfilling prophecy.
One out of field reality lays with the fiscus, the US gov has in the past two years amassed a lot of dept for its spending programs. This debt continues to bolster the economy and will likely do so for some time +-7 months. Presently the Fed and Treasury are in cahoots utilising the joint reserves to postpone the raising of the debt ceiling, but will likely capitulate to continue spending. When this increase occurs the markets will most definitely enter a new phase of exuberance which will make this idea moot. However this has not yet been announced so the idea remains for now. Keep in mind the US gov will run out of spending capital in +-Sep ( further 3-6 months if Treasury and Fed utilise reserves) so the announcement will have to be made before then for the markets to escape the trajectory anticipated here.
P.S. in the short term there is and anticipated 5-9% decline anticipated as the markets price in Q2 earnings which will likely be much worse, compared to Jan, in the March window.
However, as the year progresses company earnings will continue to diminish due to inflation. Along side consumer spending declines due to inflation. In nominal terms this will show as a relative increase or stabilisation in spending. But in real terms the drop in consumer purchasing power will further impact movements on inventories. Subsequently a real decline in consumption. We will not see this impact upfront as indicated in the previous year the exuberance of inventory purchases created a glut as consumer consumption slowed. Thus impacting earning due to companies over spending on diminishing demand. However there still remained a stimulus and inventory glut in the economy. Potentially heralding a longer 9-15 month slow decline as experienced in the post pandemic stimulus era. The sharp decline illustrated above is only the result of exuberant markets who will be hard pressed not to try anticipate the decline, thus resulting a self fulfilling prophecy.
One out of field reality lays with the fiscus, the US gov has in the past two years amassed a lot of dept for its spending programs. This debt continues to bolster the economy and will likely do so for some time +-7 months. Presently the Fed and Treasury are in cahoots utilising the joint reserves to postpone the raising of the debt ceiling, but will likely capitulate to continue spending. When this increase occurs the markets will most definitely enter a new phase of exuberance which will make this idea moot. However this has not yet been announced so the idea remains for now. Keep in mind the US gov will run out of spending capital in +-Sep ( further 3-6 months if Treasury and Fed utilise reserves) so the announcement will have to be made before then for the markets to escape the trajectory anticipated here.
P.S. in the short term there is and anticipated 5-9% decline anticipated as the markets price in Q2 earnings which will likely be much worse, compared to Jan, in the March window.
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