Earnings growth has been a key driver of the stock market’s rally in recent years, but there are signs that the momentum is starting to slow down. According to a recent chart from Societe Generale, the breadth of analyst revisions has started to deteriorate, particularly in the tech sector. This is a classic second-derivative problem, where the good news stops getting better rather than actual earnings falling.

The chart shows that the pace of earnings upgrades has rolled over, indicating that the good news is no longer improving. This is a concerning trend, as it suggests that the market’s reliance on earnings growth may be waning. While earnings growth is still positive, the rate of growth is slowing, which could impact the overall performance of the stock market.

There are a few reasons why this trend may be occurring. One possibility is that the easy gains from cost-cutting and restructuring have been realized, and it’s harder to find new areas of improvement. Another possibility is that the market is becoming more risk-averse, and investors are demanding higher returns for taking on risk.

The implications of this trend are significant. If the momentum of earnings growth is slowing down, it could lead to a decrease in the overall performance of the stock market. This could have a negative impact on investor sentiment and potentially lead to a correction in the market.

It’s important to note that this trend is not a guarantee of a market crash or correction, but it is a sign that the market may be reaching a peak in its cycle. It’s always important to be cautious and vigilant when it comes to market trends, and this trend is no exception.