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A very expensive earnings season

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DiscoverGold Member Level  Wednesday, 04/14/21 11:36:42 AM
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A very expensive earnings season
By: SentimenTrader | April 14, 2021

As we head into Q1 earnings reporting season, expectations are high and stocks are expensive. Wall Street, and the investors that rely on their analysis, are gearing up for blockbuster performances.

At the start of the last 282 earnings seasons, dating back to 1950, the average Shiller PE ratio for the S&P 500 was 19.3. This season, its valuation is nearly twice that, above 37.0.

The histogram below shows the distribution of valuation ratios on days when earnings season began for any quarter since 1950.



It's not a shocker that stocks are expensive, just as we head into the period that investors will be most focused on the denominator of that equation. But using valuation for short-term guidance like a single earnings season is iffy, and indeed there has been only a slight negative correlation.

There have been 16 Q1 earnings seasons when the Shiller PE was 25 or higher, and the S&P's returns during those earnings seasons was well below the average return during other seasons.

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