For the last year the US corporate sector has been mired in an earnings recession.
But in a note to clients out Thursday, Deutsche Bank's Binky Chadha argues that the worst is over and earnings growth is coming back.
Like, right now.
"Time for a significant inflection," Chadha writes. "The 5 drivers imply a combined boost of 8.2% to Q2 S&P 500 earnings; after -6.3% in Q1 to slightly positive growth of +1.9%. The bottom-up consensus presently sees only a modest turn, to -4.7%.
Adding: "The differential between our top-down arithmetic and the bottom-up consensus suggests downgrades should stop and indeed they have paused recently and eventually lead to upgrades or positive surprises."
Deutsche Bank
The five factors Chadha argues have really dragged down earnings in recent quarters: the dollar, oil prices, domestic growth, international growth, and market volatility.
From trough to peak over the last year and a half, the dollar appreciated by about 35% while the price of oil declined about 75% over the same period.
In recent months, both of these trends have reversed. This will help US-based companies collecting sales overseas as well as repair some of the damage in the energy sector which saw earnings fall over 100% in the first quarter.
Deutsche Bank
The biggest boost to earnings, in Chadha's view, however, will be a boost in domestic growth, which should add 3.2% to earnings in the second quarter as recent PMI readings on overall economic activity accelerated in the first quarter of the year. International growth will still be a modest 0.2% drag on earnings in the second quarter, however.
Additionally, a calming of financial markets - which led to bank stocks getting hammered to start the year as investors fretted about the impacts of negative interest rates on banks - should see the financial sector return to earnings growth.
And so taking all this together, it looks like the worst for America's biggest companies, at least when it comes to bottom-line hits, is over.
Deutsche Bank