Here is one way to put a happy spin on things. Wall Street is increasingly aware of the deceleration in corporate profits and a potential for the upcoming earnings season to be a rough one. This CNBC article dutifully notes these things, but the highlight is one sun shiny optimist who apparently thinks it may already be baked in.
Earnings season could bring an ‘outside surprise’
“Obviously there’s a ton of concern… but my view is that expectations have come down rapidly, and there’s a clear understanding that we’re looking at a real weak environment right now from an earnings perspective,” said David Seaburg, head of equity sales trading with Cowen & Co.
“I think there could be an outside surprise that could carry this market higher, especially given that you have every central bank working to inflate asset prices.”
There you have it, “expectations have come down rapidly”. Surely this optimistic view that the worst may be behind us includes stock market valuations and prices that have adjusted…
Oh wait, never mind. ‘The worst’ never even got started.
So let’s keep it real and simply realize stocks have been bullish, the trends are up and there has been no discounting of decelerating corporate profits in stock prices. The market now decides between manic bubble making (defined here as an irrational separation from fundamentals, cooked up by policy though they have been) or a correction to get in line with said fundamentals.
Again, the theme has been that the US market was not over valued into 2nd half 2014 if one is willing to wear blinders to its dependence upon unconventional monetary policy. But if those fundamentals continue to degrade, the market will look conspicuous even to the densest, most conventional of the herd.
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