Q3 will be the first quarter in which the US officially suffers an earnings recession: two consecutive quarters of declining annual EPS growth despite hundreds of billions in stock buybacks reducing the per share denominator in the EPS calculation. Q4 will not be any better and while EPS are expected to decline one again, it will be the fourth consecutive decline in revenues in the S&P that will be the highlight.

The reasons for this slowdown in both sales and profits are well-known: the surge in the dollar, the slowdown in global trade, the collapse in commodity prices, and the suddenly weak consumer (just look at retail stocks in the past month).

Furthermore, and contrary to conventional wisdom, net income is declining both with and without energy companies. As Socgen notes, Net reported income is declining not just in energy, but in a variety of other sectors and those who do not yet have negative EPS growth have very low single digit growth numbers.

For now the market is oblivious, and has more than made up for the decline in earnings by boosting P/E multiples, but how much longer can this tradeoff continue especially in an environment of rising rates (as Goldman warned earlier).

And, even more importantly, what happens to revenues and profits in 2016? That is the question posed by SocGen’s Andrew Lapthorne who notes that “profits are weaker and largely negative, but can they get worse still?”

His answer, “in many ways yes.”

He notes that not only have historical numbers come in weaker than expected but 2016 forecasts have been cut extensively over the last 12 months. The biggest downgrades have of course been in the Energy and Industrial Metals & Mining sectors. However even beyond these sectors forecasts for next year have been reined in aggressively. There is the odd exception such as Retail (largely down to Amazon (AMZN) and Health Care, but overall the message is that 2016 is shaping up to be a year of profit decline even excluding the energy sector.

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