A new recession might be just around the corner

The revised GDP numbers were released last week, and they showed that the US economy grew by 2.1% in the third quarter. Not so fast!A big chunk of that 2.1% growth, however, was from a buildup in business inventories, which businesses accumulated for one of two reasons: (1) a voluntary accumulation in anticipation of an avalanche of orders, or (2) an involuntary accumulation as a result of disappointing sales.Given the sales warnings weve heard from a growing line of retailerssuch as Macys, Nordstrom, Walmart, and Tiffanyswhich of the above two reasons do you think explains the inventory buildup'All of this leads us to even more worrisome signs warning that a new recession might be just around the corner.Nominal GDP Growth Has Turned NegativeThe last time that occurred was in 2009, in the middle of the Financial Crisis.Earnings Growth Has Turned Negative, TooThe problem is plunging corporate earnings, which fell 10% from a record $106 in 2014 to $95.40 in Q3 2015. S&P earnings have fallen for two quarters in a row and will likely fall in the fourth quarter too.Net Profit Margins Have PlummetedThe S&P 500s profit margins plummeted more than 0.6% since the beginning of this year. The last time we noticed such a decline was right before the 2008 financial crisis.And since 1973, there has been only one 60 bps decline in S&P 500 net profit margin that didnt lead to a recession.A Recipe for DisasterDespite the earnings recession, the see-no-evil crowd has boosted valuations; the trailing 12-month P/E ratio of the S&P 500 is 22.7.Yup, almost 23 times earnings.Thats high enough to raise red flags all by itself, but it is especially troubling because high valuations generally occur during periods of risingnot fallingcorporate earnings.High valuations combined with shrinking profits are a dangerous cocktail that should scare the pants off anyone.Im not suggesting you should rush out and sell all your stocks tomorrow morning, but I strongly suggest that you have a clear strategy to protect your portfolio when the bears take the lead on the Wall Street scoreboard.SEE ALSO:Trucking demand is a lot worse than imaginedJoin the conversation about this storyNOW WATCH: TRUMP NATION: We tried to answer the 3 questions everyone has about Donald Trump
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