Revenues of the companies in the S&P 500 have been declining all year. What does it mean for the American economy and the gold market?
The S&P 500 revenues for the third quarter are tracking for a 3.3 percent decline, which would mark the third quarter of declines in a row, after a 2.9 percent drop in the first quarter and a 3.4 percent decrease in the second quarter. On top of that, revenue in the fourth quarter is also expected to show a 1.4 percent decline, which would mark the ugliest revenue recession since 2009.
Why are the revenues declining? Some analysts blame the strong greenback, others China or cheap oil. Although there may be a grain of truth in these explanations, many companies that mostly benefit from the strong U.S. dollar or low oil prices (like the Union Pacific Corporation, which does not operate trains in Europe and buys a lot of oil) are still reporting declining revenues. And companies in other countries are also struggling, despite the fact that the strong greenback should be beneficial for them. The true reason lies in stagnant global economic growth and the ZIRP, which prompted companies to conduct stock buybacks at the expense of investing in future productivity.
What are the possible consequences for the U.S. economy and the gold market? Well, when corporate revenues decline, companies usually cut their investment spending and other expenses, which would drag down the U.S. economy. The revenue recession may also lead to further selloffs in the stock market, as without growth in revenues the current prices would seem even less justified. Shrinking corporate revenues may undermine the investors’ faith in the real U.S. economy and, thus, spur safe-haven demand for the shiny metal.
Summing up, revenues of the companies in the S&P 500 have been declining all year marking the biggest revenue recession since 2009. This means that the U.S. economy is not decoupling from the rest of the world and has also been hit by the slowdown in global economic growth. The possible outflows from the stock market and undermined confidence in the U.S. economy should provide support for the price of gold.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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