Over the past several weeks, I’ve editorialized breathlessly about the potential perils ahead for corporate America, as profit growth looks set to turn negative.

That’s a euphemistic way of saying the long-awaited US earnings recession is nearly upon us, and this time around, you needn’t look to any famously bearish top-down strategists to make the case.

Consensus expects YoY earnings growth to flatline, then turn modestly negative in Q1 and Q2, before rebounding sharply in the back half of the year.

Readers will be forgiven for emitting an exasperated sigh (or chuckle). After all, the “profit reckoning” prediction is several quarters old now, and so far it hasn’t materialized. But it’s important to understand why this particular can probably can’t be kicked much further.

For those unfamiliar, I’d encourage you to peruse “Be Careful What You Wish For” and “Bulls Hard To Spot After Soul-Crushing Year” for the details, but if it’s a short, concise version you’re after, Nomura’s Charlie McElligott delivered it on Friday, describing what he called an “inconvenient truth.”

“As the market now pivots again from macro CPI / inflation / wage data for a bit and into the micro earnings world, a reminder that last year’s real silent shocker was that despite the impulse tightening from the Fed expected to impact top-line growth negatively, US corporate earnings actually went higher over the year, due to inflation and pricing power in cramming-down these price increases, which consumers by and large were able to digest with higher wages and excess savings,” he wrote, adding the following:

In other words, it was a ~10% nominal GDP story in the US last year!

So, now, we find ourselves celebrating the long awaited disinflation which eases the ‘macro FCI tightening’ dynamic from central banks, as both supply- and demand- side inflation abate — especially versus the insane YoY comps of last year, meaning that the multiple compression destruction of 2022 is over.

However, the micro reality is that said disinflation will now actually begin to unwind much of that corporate earnings pricing power gain into instead a directional EPS loss / trajectory shift lower, as inflation now finally rolls over, despite it being ‘assumed’ into many of those Street analyst numbers.

This is how the equities bears can still ‘hold the line,’ and why it’s unlikely that we can get that rage ‘melt-up’ from here, as valuation justification remains such an overhead cap.

Charlie called that, “my equities forward-looking ‘macro rub’ —  my caveat to all this risk- / asset- repositioning on account of the ‘dovish disinflation’ allowing for a culling of ‘left-tail’ scenarios, but with a ‘micro’ true-up awaiting due to earnings.”