For whatever it’s worth, Robert Shiller doesn’t sound quite as sanguine about Q1 earnings as a lot of other people are sounding lately.
To be clear, quite a few desks have suggested that the potential for disappointments to be magnified by markets certainly exists given that the bar is set as high as it is.
“The bar for 1Q earnings has been raised, given consensus EPS estimates have been lifted by 5% since the passage of tax reform in late December [and] consensus expects S&P 500 EPS will grow by 17% versus 1Q 2017, the fastest quarterly growth since 2011,” Goldman wrote a couple of weeks back. Here’s the visual on that:
That sets us up for a “sell the news” dynamic and on Friday, we got what was perhaps a preview when banks were crushed following results from JPMorgan and Citi (boosted as they were by heightened equity vol. in Q1).
Asked about earnings season by CNBC late last week, Shiller had the following to say:
As of the fourth quarter, real S&P 500 earnings were still below their 2015, if you correct for inflation. So, it’s not like we are in this spectacular market.Obviously, a solid earnings season is good news for the market. But it’s not something that we should bank on.
Here’s the clip:
If you take the two and a half minutes to watch that clip, you’ll hear a bit about Trump and volatility, but the bottom line in terms of valuations and earnings is this:
There is still risk in the market. The United States is the most expensive market in the world.