Corportate Revenues Plunge. 

The Eurozone meltdown has sent capital pouring into (temporarily) safe haven currencies like the US dollar, which rose by nearly 12% between October 2011 and August 2012.

This sounds like a good thing for the US but it’s not, because US multinationals lose big when the dollar pops. Assume, for example, that you’re making computers in California and selling them to Germany, and the dollar goes up by 10%. Suddenly your computers are 10% more expensive, which makes it hard to sell as many as you expected. And those that you do sell are paid for with euros, which are now worth 10% less than they were a few months ago. When you convert those euros to dollars in order to pay your bills, your revenues are 10% lower than they should be. Your costs, meanwhile, are mostly in dollars, so your profit ends up being far lower than you expected.

Now combine this margin squeeze with an order slowdown in Europe and China, and extend it to the whole S&P 500 and you get the following:

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