DAVID ROSENBERG: There are 2 myths about a 'profits recession' I'd like to dispel

Earnings for S&P 500 companies are forecast to fall -2.8%, according to FactSet.

Ahead of peak reporting season, Bank of America Merril Lynch analysts noted that year-on-year profits were forecast to decline, causing what they called an “earnings recession.”

In a note Tuesday, Gluskin Sheff’s David Rosenberg clarifies two quick things about this so-called “earnings recession” or as Rosenberg calls it, a “profits recession.”

  • First, the unprecedented nature of the oil crash meant that energy companies were bound to take a hit, and drag the consensus forecast for growth down.

Rosenberg notes that excluding energy companies, earnings are set to grow 6.2% year-over-year in Q1, 5.2% in Q2, 6.7% in Q3, and 9% in Q4.

  • Second, the decline in profits is not a reason to be bearish about stocks.

Rosenberg adds that multiple expansion is being helped by the strong dollar, and highlights that in the mid-1980s and late-1990s, when the economy was not in recession, FX headwinds and low oil prices also shrunk earnings.

But that did not stop the S&P 500 from gaining more than 30%.

NOW WATCH: Adam Savage Of ‘MythBusters’ Says This Scientific Fact Blows His Mind

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.