This divergence can 'only end in tears’: Investor

The past several years has brought rather impressive earnings growth but little in the way of economic growth, which will eventually lead to a major problem for stocks, argues Gina Sanchez of Chantico Global.

Earnings and economic growth "should be related, and divergences are eventually brought back into line — so the excess money floating around since 2009 has created a divergence that will only end in tears," Sanchez said.

Her belief is that the stimulative policies of the Federal Reserve, combined with the machinations of corporations, have led reported earnings to become over-extended. This even as the S&P 500 looks set to log its second-consecutive quarter of negative year-over-year earnings growth in the third quarter.

"What's driving earnings, in my opinion, has been unsustainable — and that's what we're going to have to deal with," she said Tuesday on CNBC's "Trading Nation."

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But Erin Gibbs of S&P Investment Advisory doesn't espy a divergence between earnings and GDP that presages lachrymosity.

"We found that, actually, earnings growth is typically much higher than GDP growth. Earnings growth tends to stay around 10 percent, and GDP growth is around 2 to 3 percent," Gibbs said Tuesday.

And in fact, with earnings growth now turning negative thanks in large part to the decline in energy prices, Gibbs says it's likely that an earnings rebound will be ahead.


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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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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