Tags: Edwards | recession | profit | drop

SocGen's Edwards: US Recession Coming Amid Profit Drop

By    |   Wednesday, 26 March 2014 03:25 PM

U.S. corporate profits are falling, and that's going to bring a recession, says Societe Generale strategist Albert Edwards.

While most measures show profits rising, he wrote in a commentary obtained by CNBC that people should look at the MSCI Operating Profits Indicator, which tracks U.S. corporate profit over the last 12 months.

That statistic shows earnings began slipping in the fourth quarter, Edwards said. "U.S. profits have begun to decline on an MSCI trailing basis," he wrote. "A decline in profits is inevitably followed by recession shortly thereafter, as investment, the most volatile of all GDP components, is cut."

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Fourth-quarter earnings for the 496 of the Standard & Poor's 500 Index companies that had reported as of last Friday rose 8.5 percent, according to FactSet.

Indicators showing strong gains in profits are influenced by write-downs companies made in 2012, Edwards said. He maintained that earnings forecasts are "artificially inflated" and that the growing gap between these forecasts and MSCI reported profits shows the quality of earnings is declining.

"It will be extremely difficult for the U.S. economy to escape its Great Recession hangover with this poor profits backdrop," Edwards wrote.

Stock market participants are now starting to focus on earnings for the first quarter, which ends Monday. Analysts forecast that profits will rise 2.1 percent for the period, according to Thomson Reuters, USA Today reports.

That's down from the 6.5 percent increase that analysts had predicted Jan. 1. Many companies have downgraded their earnings forecasts since then.

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U.S. corporate profits are falling, and that's going to bring a recession, says Societe Generale strategist Albert Edwards.
Edwards,recession,profit,drop
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2014-25-26
Wednesday, 26 March 2014 03:25 PM
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