Posted inEquities

What if the Fed is wrong and other scary thoughts for 2016

What if the earnings do not come through?

Another talking point throughout the year has been when exactly earnings growth will begin to start coming through.

Equity valuations have continued, in the main, to rise in 2015, but these valuations have not always been accompanied by growth in underlying earnings. While there are some that argue this is now finally beginning to happen, especially in Europe, in other parts of the world it seems to be going the other way.

As the graph below demonstrates, in the US, profits per share seem largely flat over the course of the past year. But, this does not take account of the level of share buybacks ongoing over the same period, which means profits per share must look even worse.

 

If this earnings growth does not come through and, it would be unlikely if the US economy is not as strong as people think, then valuations would be in for a tough time.

Given that the above questions are only three specific elements of the whole, we haven’t even looked at the possibilities for emerging markets in depth or the chaos that could be created by the geopolitics, there is a strong case to be made for a scary time of things in 2016.

tom@ybc.tv

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