The irony of this trend coinciding with new highs for stocks is not lost on Trahan, who acknowledges that the market has overcome all manner of obstacles over the past few months. "There are many ways to assess the health of S&P 500 earnings, but at this stage no matter how you slice it, the trend is slowing," he said.
Gone are the days of double-digit earnings growth. The consensus expectation for S&P 500 earnings growth on a year-over-year basis peaked last September at 23% and now stands at 1%. Trahan expects to see a negative print sometime in the coming months. If the aforementioned trend is not enough proof of an earnings crunch, Trahan provides two more profit barometers that are not in good shape either.
First, forward earnings before interest and taxes has come down from a peak of 11.3% in January to 0% right now. And secondly, earnings breadth has worsened. There are 160 companies with negative earnings expectations compared to 68 at the beginning of the year.
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