Stock prices are up, earnings estimates are down, and the multiple at which the market trades is getting pricey by historic standards.
Of course, it is typical for analysts to overestimate earnings gains and see them come in lower as we get closer to the quarter that is being examined.
What is not typical is to have this happen with the markets at historic highs: The S&P rallied 12% in the fourth quarter on expectations earnings would be higher in 2020. The trend for the companies reporting early for the fourth quarter — which includes notable disappointments from Federal Express, Micron, and Bed Bath & Beyond — is somewhat worrisome, said Nick Raich of the Earnings Scout.
"Given the EPS estimate revision trends of the early 4Q 2019 reporters, it is likely a vast majority of S&P 500 companies will be lowering their 2020 EPS estimates," he said.On Jan. 1, 2019, stocks were cheap at 13.9 times forward earnings for the S&P 500, well below the historic norm of roughly 16. On Jan. 1, 2020, it was at 18.0, and today it is at 18.4, the higher end of its range in the last 20 years.
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