UBS, a large firm on Wall Street, is warning investors that a recession in earnings could trigger a correction in the stock market, according to Business Insider.
There is no debate on S&P 500 forward earnings: a contraction appears imminent," the bank stated on Tuesday. The concern is over the year-over-year growth rate for the S&P500, which has fallen to less than 1 percent compared to 23 percent 14 months ago.
"Declines in S&P 500 forward earnings are uncommon and rarely good for equities," the firm stated. "The index typically tops out just as earnings start to decline." There have been six instances where declining earnings expectations preceded corrections in the S&P500.
All three major U.S. indexes are currently at all-time highs as hopes for a trade deal between the U.S. and China increase. UBS predicts that earnings expectations will continue to fall and the bullish outlook for stocks will dampen.
On Tuesday, UBS warned investors that a recession in earnings could trigger a correction in the stock market.