The ‘revenue recession’ could be getting worse

This earnings season, S&P 500 companies are expected to see profits drop by nearly 6 percent. But it's the top line of companies' income statements that could actually cause the bigger concern.

Third-quarter revenues are projected to fall 3.3 percent from the third quarter of last year, following a 3.3 percent decline in Q2 and a 2.8 percent drop in Q1, according to FactSet. And analysts aren't expecting a turnaround anytime soon, with fourth-quarter revenue projected to decline 1.6 percent.

The last time revenues ran four negative quarters in a row was 2008 to 2009.

Since two consecutive quarters of negative GDP growth mark an economic recession, the extended fall of revenue has been referred to as a "revenue recession."


And according to Boris Schlossberg of BK Asset Management, this revenue recession is pointing to a worrisome trend.

"It's basically showing you the consumer simply doesn't have the power to pay up for product, and companies are therefore forced to have to discount in order to be able to move merchandise," Schlossberg said Monday on CNBC's "Trading Nation." "We need to see better income to the consumer in order to see that revenue recession come back and turn into an expansion."

Also affecting the decline in revenue are lower oil prices and fluctuations in the U.S. dollar against other currencies, Schlossberg said.

"The dollar had a big strong rally and then it kind of came off," he said. "Maybe part of this is just exchange rate adjustments as we go forward."

In contrast to revenues, earnings per share were positive year over year in the first quarter, and much more narrowly negative in the second quarter, per FactSet.

Unsurprisingly, much of the expected sales decline comes from the energy sector, with a revenue drop of 38 percent expected to be reported for the third quarter. The industrials and materials sectors also are expected to see year-over-year sales shrinkage.

Read MoreThe energy companies expected to see huge moves

Despite the bleak outlook for company sales, technician Rich Ross of Evercore ISI says the S&P 500 is set to move higher.

"Earnings are clearly a concern here. You need earnings to make stocks go higher," Ross said Monday on "Trading Nation." "But I think the technicals are set up to move higher when the market meets those already-lowered expectations."

Ross sees the S&P 500 testing the 200-day moving average around 2,060, and could go as high as 2,130.

Stocks rose slightly on Tuesday morning, with the S&P 500 trading around 2,017. A rise to 2,130 would mean a 5.5 percent gain from current levels.

"A lot of these concerns, which emanated from China and the emerging markets around the world which have been improving of late, are already reflected in the chart of the S&P 500," Ross said.

Read More Want to know where stocks are going? Watch China

Out of S&P 500 companies, 26 have reported earnings as of Tuesday morning.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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