Corporate Profits Need Oil Rebound — Quickly

Posted by Jon Markman - Money & Markets

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If the energy sector can get some relief, the overall market will as well. Ed Yardeni, of Yardeni Research, notes that S&P 500 earnings fell 14.1% in 3Q15 over 3Q14. But that becomes a 3.4% rise in earnings when the drag from the energy sector is removed. Of course it’s a lot easier to do that math on paper with conjecture than it will be for energy to actually recover.

The turnaround will need to happen soon. History shows that corporate profits tend to drive the ups and downs of the business cycle. Profitable companies increase advertising spending, increase capital investment, hire new workers, and raise pay to poach talent from other companies. Unprofitable companies shrink.

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