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The Most Important Canary For Corporate Profits?
There's a historic ravine between reported earnings and cash flows in the US, and it doesn't bode well.
That's according to Morgan Stanley's Mike Wilson who, despite conceding that stocks may be able to sustain a rally until the profit malaise he expects becomes too obvious for investors to ignore, nevertheless retained a medium-term bearish outlook in his latest weekly missive.
The analysis of accrual earnings Wilson cited actually comes from the bank's Global Valuation, Accounting and Tax te
The canary sings differently by industry and sector. From my scan, most large cap retailers now have invtry / L12M sales lower than or inline to 2019 levels. HD is an exception, with invtry/sales higher than 2019. Autos and auto components are higher. Textiles and apparel are higher. Household durables are mostly inline. The various industrials groups are mostly higher. Semis are have inline to lower, with some exceptions in the most “digital” semis. Tech hardware is generally higher, with AAPL a smug exception. Etc. Other than semis, this seems pretty consistent with typical early vs late cycle name patterns.