A review of Q4 2015 corporate earnings reveals a significant slowdown in revenue and earnings growth. While these developments have been affected by the sharp decline in commodity prices,they may reveal early signs of recessionary conditions.

1. Slides of the Month – March 2016
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Overview: As we have discussed many times in the past, we believe corporate
earnings are an essential tool in determining long-term investment strategies.
With Q4 2015 earnings season nearly complete, we analyze the key trends
and look forward to what may lie ahead in 2016.

2. • With earnings season
nearly complete, the
results for Q4 2015 appear
to be poor, with negative
sales growth of 4.3% and
negative earnings growth of
8.2%.
• Of the S&P’s 10 sectors,
only 3 showed positive
earnings growth and only 4
showed positive sales
growth.
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An Earnings Update
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3. What has Caused the Decline…
• A significant driver of the
earnings’ decline has been
the precipitous fall of
commodity prices and the
detrimental impact on
commodity-related
companies.
• The chart on the right
shows 1-year trailing
performance of the major
commodity markets. As
you can see, WTI crude oil
has fallen 32% and virtually
every other commodity is
substantially negative.
• Energy, Materials, and
other related companies,
which sell a variety of
commodities, have been
forced to slash earnings.
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4. The True Impact of Low Oil Prices
• Although the producers of oil have been hurt, consumers have benefited.
• Dramatic savings in the hundreds of billions of dollars domestically, and possibly into
the trillions in savings for consumers of energy globally, should help put more money
into the pockets of energy users, potentially stimulating demand.
• However, for energy producers there may be bankruptcies and/or prolonged periods
of lack of profitability and growth. This has a ripple affect on the financial sector with
concerns about energy loans, and on regions of the world where energy is critical to
maintaining budgetary balance, such as Russia and the Middle East. The domestic
fracking industry has been hit hard by low oil prices with many related stocks and
bonds suffering dramatic decline.
Longer term, low energy is positive for much of the globe. Getting
past the near term volatility, and the negative effects mentioned above, has
added to uncertainty and has been more challenging than many anticipated.
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5. Strong Dollar Hurting Corporate Results
• Currency has had a significant
affect on corporate revenues
and earnings. The
strengthening USD has
pressured revenue growth by:
• The translation effects for
multinationals
• Foreign buyers find U.S.
goods more expensive when
purchasing with their weak
currencies (and non-U.S.
products are cheaper to buy
for U.S. consumers)
• This chart is the Bloomberg
Dollar Index. It tracks the
performance of 10 leading
global currencies versus the U.S.
Dollar. The Dollar rose by more
than 10% from Q4 2014 to Q4
2015.
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Q4 2014
Q4 2015
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6. Future Market Expectations
With several quarters of negative growth behind us, due in large part to the collapse of oil prices and currency impacts,
economists are expecting a more positive trajectory in the back half of 2016.
Q4 2015
Average
Sales
Average
Earnings
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7. Conclusion: Earnings growth has, at a minimum, taken a material pause and at worst may be
demonstrating early signs of recessionary conditions. While we do expect some stabilization of
the earnings picture as the year unfolds, we are carefully monitoring economic data around the
globe. We remain focused on investments which offer clients an attractive risk-adjusted return.
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Market Perspectives – March 2016
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8. Opinions expressed in this commentary may change as conditions warrant and is for informational
purposes only. Information contained herein is not intended to be personal investment advice for any
specific person for any particular purpose. We utilize information sources that we believe to be
reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of
future performance; investing involves risk and may result in loss of capital. Consider seeking advice
from a professional before implementing any investing strategy.
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Disclaimer
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