By Rob Wile From Business Insider

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The Percent Of Firms Beating Earnings And Revenue Forecasts Keeps Dwindling (Bespoke)

Here are some charts from Bespoke showing the percent of firms who beat earnings and revenue forecasts in Q2. The recent trend is clear: downward. “Early on this season, the earnings beat rate was holding right around the 60% level for US stocks, but last week it took a nosedive down to 57.4%. The largecaps report early on during the typical reporting period, while smaller cap companies typically report towards the end. Last week, the earnings beat rate was weighed down by a large number of smaller cap names missing estimates. If the current beat rate holds through Thursday, this would actually be the weakest reading we’ve seen during an earnings season since the bull market began in early 2009.”

See attached charts

The Two Most Likely Correction Scenarios (Oppenheimer)

Oppenheimer’s Ari Wald sees a near-term correction as inevitable. It is likely take one of two forms: “In our view, a seasonal bull market correction has become a question of when, not if. Our top concern is that internal breadth is narrowing. We believe whether weakness in the S&P 500 develops now or later depends heavily on the Russell 2000. We see two possible scenarios developing: Correction Now Scenario: The Russell 2000 fails to hold support and the S&P 500 consequently follows the Russell 2000 lower. Correction Later Scenario: The Russell 2000 bounces from support and incites another bout of S&P 500 strength, a more glaring multi-month divergence forms, and a deeper correction ultimately ensues.” (emphasis his)

We Are Only In The Middle Of The Business Cycle (Wells Fargo)

The above scenarios for stocks not withstanding, we are likely only in the middle of the business cycle, according to Wells Fargo. In a new note they write: “Through our exploration of the cyclical trend in corporate profits, we have examined corporate profits as a share of nominal GDP. Using this benchmark and separating out the cyclical and trend components of the growth in corporate profits, we find that corporate profits can provide a good indication of the mid-point of a business cycle and that it appears we are very close to the mid-point of the current business cycle. Furthermore, two key economic variables can provide insight into both the corporate profits cycle and the business cycle. In particular, labor productivity and unit labor costs can be used to identify mid-points in a business cycle. Based on the last three economic expansions, the point at which productivity growth begins to exceed corporate profit growth has typically signaled the mid-point of a business cycle, which current data suggests may be near.”

There Is Not Enough Private Capital In The Housing Market (Digital Risk)

Tom Showalter, Chief Analytics Officer at Digital Risk, makes two key points about the unimpressive housing market: There’s not enough private equity in the market, and that it’s probably a symptom of the larger malaise. In a new note he writes: “Government guarantees are too strong a disincentive to private capital. There is virtually no private capital at work in this market and that is likely to remain. Overall, the government is probably too active, which constrains the industry’s ability to react and adapt and develop markets.” He continues. “The slow housing market is a symptom of economic malaise, not a cause. Building more houses, making more loans, extending HARP and related programs can’t fix the problem – that needs to be done with fundamental economic progress.”

IMAGE: Nicholas A. Tonelli/flickr

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