US Corporate Income Tax Paid Down 10% YTD

US Corporate Income Tax Paid by Month:  Green indicates monthly payments up year of year (YoY).  Orange indicates payments are down YoY.

I'm starting to see bandwagon jumping analysts starting to talk about expecting another surge in stocks.  Certainly one is possible, since markets can stay irrational for very long periods.  But if this is to be based on corporate earnings there are few signs they are improving, in fact most recent indications are that corporate earnings are generally falling.  Months ago that point was discussed widely, but recently that discussion has fallen off.

The chart above shows US corporate income tax paid, this can be used as a macro measure of US corporate profits.  It clearly shows a long term downward trend in earnings with taxes paid down 10% Fiscal YTD implying a significant 10% drop in earnings YoY.  So far there are no signs this is turning around with more recent months showing a downtrend solidifying as the down months string together.  This is beginning to look a lot like the pattern we saw in late 2007/early 2008.

As in 2007/2008 manufacturing is slowing, most indicators including manufacturing employment are clearly showing this.  However, construction and construction employment is holding up well, even though growth in construction has slowed.

The strong construction sector could continue to hold up the economy and markets overall, however the trend of falling corporate earnings is a huge headwind for stocks.  Any downward blip in construction is likely to have dire consequences for the economy and markets.  To be fair construction employment continues to grow about 4% YoY, down from about 5-6% growth in 2015, so the bell on construction's demise isn't ringing yet, and interest rates are still low enough to hold off a serious downturn.  But as rates creep up, so do the risks.  Worse, stock indexes are again near highs, with overall earnings still clearly well off levels when previous highs were made, and with slower growth rates for the economy and profits, so any move up from here will be built on a weak foundation.

What is most clear is most indexes and commodity prices are now running into very heavy technical resistance with the fundamentals lacking to push them over the top.