Head-to-head comparison
Corporate Profits vs S&P 500
Corporate profits vs S&P 500 — what leads what?
Verdict
Both wins
S&P 500 leads at turning points; profits confirm. Use both.
One-year comparison
Left axis: Corporate Profits (green) · Right axis: S&P 500 (blue)
The analysis
The S&P 500 is a discount of future expected earnings, so in theory it should lead reported corporate profits. In practice, equities get ahead of profits at cyclical extremes. A 2-quarter YoY decline in NIPA corporate profits is the single cleanest business-side recession tell. The S&P 500 often rolls over 3-6 months before profits bottom.
Indicator A
Corporate Profits
Track U.S. corporate profits after tax. Declining profits have preceded 81% of recessions since 1900 — the heart of the business cycle.
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Indicator B
S&P 500
Track the S&P 500 index in real time. Bear markets (20%+ decline) have preceded or coincided with every US recession since 1950.
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