The Calm Before The Earnings Storm
Everything is great!
Inflation is slowing.
The Fed is expected to lighten up significantly.
And stocks are rocking.
If that’s all that mattered, this rally would be entirely justified.
Earnings season is just a few weeks away and investors will be reminded of how strapped consumers are, how inflation has driven up costs, and how little value has been created for shareholders.
And stock prices could correct big time.
That’s why, in the midst of this rally, we continue to see significant risks for many stocks.
We’ve found a chart that really shows the risks too.
The chart is from TopDownCharts which publishes a lot of thoughtful big picture charts.
This one shows the forward earnings per share predictions.
One quick look at it screams danger for U.S. stocks:
The chart shows how earnings have soared.
Earnings climbed about 30% from pre-pandemic levels.
Today the S&P 500 is down 20% from all-time highs, but it may not be enough of a correction in prices for the earnings disappointments coming around the corner.
The basis for the rally has been everything getting less bad.
But we’ve already seen retail stocks get crushed, business investment dropping across most sectors, and, in all likelihood, it’s going to hit corporate bottom lines.
If it does, the next big correction could hit hard and fast.
As an investor, it’s better to be ready than regretful.
