The fiscal cliff isn’t the only abyss staring financial markets in the face: there’s also an earnings cliff, says Fortune senior editor Stephen Gandel.
With the earnings season about 50 percent complete, Standard & Poor’s forecasts that profits for S&P 500 companies dropped 3 percent in the third quarter from a year earlier. That would constitute the first quarterly earnings decline since the recession ended in June 2009.
The likely implication: “watch out below,” Gandel writes. Only once in the last 25 years (1998) has profit growth turned negative without being followed by a recession or already being in a recession.
Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.
Combine the earnings skid with slumping profit margins and a sluggish economy, and you have a recipe that’s not very tasty for stocks, he says.
Looking ahead, of the first 20 companies in the S&P 500 that offered fourth-quarter profit guidance during this earnings season, 18 have cut their estimates, according to Goldman Sachs.
“Although guidance tends to be downbeat, this is especially negative,” David Kostin, Goldman’s chief U.S. equity analyst, writes in a report obtained by CNBC.
He sees the S&P 500 index plummeting 12 percent for the rest of the year, ending at 1,250.
Not surprisingly, the earnings cliff and the fiscal cliff are connected.
Companies cutting their earnings projections “have one eye on the fiscal cliff, [thinking] we might as well bring expectations down in case we go over the cliff,” Mike Murphy of Rosecliff Capital tells CNBC.
Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.
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