Earnings growth = record prices or so the general financial headlines seem to convey. And, without context, all this is true. Earnings have bounced back a bit from last year’s energy driven earning malaise and we even have seen growth in revenues.
Yet what seems entirely missing is context: Investors are paying a lot more for a lot less. While select companies are doing well, S&P GAAP earnings, as a whole, remain far below the 2014 peak:
The main reason: Sizable multiple expansion. In 2014/2015 GAAP P/E was sitting at around 20. Now it’s sitting above 25:
That’s a lot of optimism. And in short: Whoever is buying is paying more for less.
Some people know what to do in an environment such as this:
Big Boys with
Big Bucks are selling
Big Time during
Pig Time. pic.twitter.com/0K9nC6JBd5
— Sven Henrich (@NorthmanTrader) May 6, 2017
And so are others:
What are you doing?