Earnings are not immune to declines

The reality is that the business cycle is different than the economic cycle.

GDP growth is much more consistent than EPS growth. EPS declines can occur during periods of economic growth.

Across the 68 years since 1950, earnings declined during 23 of them despite positive economic growth in all of those years…34%!

Real GDP growth (excluding inflation) has lagged the historical 3% average thus far in the 2000s and ’10s.

But even if the economy looks positive for the next few years, history highlights that EPS is not immune to decline—especially from such a currently high level of profit margins.

By Terry Grennon

Asset Allocation Strategist