Outside the Box: Only 1 stock-market sector has experienced real earnings gains in the past 12 months

We’ve written before about how the “earnings recovery” in U.S. equity markets is an illusion.

Accounting earnings may have rebounded from 2015 lows, but economic earnings—which reverse accounting distortions and account for the weighted average cost of capital (WACC)—remain in a persistent downturn.

Figure 1 shows this trend across the U.S. equity market.

This disconnect between accounting earnings and economic earnings is not just due to a handful of companies. Six out of 11 sectors currently have misleading earnings (GAAP rising and economic earnings falling). Just one sector—technology—saw economic earnings rise over the past 12 months.

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