Via Global Macro Monitor,
Stephen Gandel of Bloomberg out with a good piece this morning on:
…shares of companies that have reported both better-than-expected profits and sales for the second quarter have barely budged this earnings season. It’s the least fist-bumping investors have done for great quarters in 17 years. – Bloomberg
Is this the beginning of a catch up trade?
Stocks rose during the recent earnings recesssion through P/E multiple expansion and this just may be the market allowing fundamentals to catch up with prices. Nah, that’s too rational.
Too much catching up to do as noted by Howard Marks comments below.
The S&P 500 is selling at 25 times trailing-twelve-month earnings, compared to a long-term median of 15. The Shiller Cyclically Adjusted PE Ratio stands at almost 30 versus a historic median of 16. This multiple was exceeded only in 1929 and 2000 – both clearly bubbles. While the ‘p’ in p/e ratios is high today, the ‘e’ has probably been inflated by cost cutting, stock buybacks, and merger and acquisition activity. Thus today’s reported valuations, while high, may actually be understated relative to underlying profits.
This post was published at Zero Hedge on Aug 3, 2017.