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Irrational Exuberance 2018: Analyst Estimates Go Ballistic

Real Investment Advice  ( Original )
APR 23, 2018

All green lights. Tax cuts and buybacks and Fed funds forever.

As the Great Optimism Express gallops gleefully away into a cartoon horizon of its own hallucination, analyst estimates are getting downright giddy. It is the perpetual, 90-day, quarterly based nearsightedness of the market. Effects of Fed-rigged stimulus extrapolated out for years.

Despite a recent surge in market volatility, combined with the drop in equity prices, analysts have “sharpened their pencils” and ratcheted UP their estimates for the end of 2018 and 2019. Earnings are NOW expected to grow at 26.7% annually over the next two years.

Optimism” is, well, “exceedingly optimistic” for the end of 2019.

There is virtually no “bullish” argument that will currently withstand real scrutiny.

  • Yields are rising which deflates equity risk premium analysis,
  • Valuations are not cheap,
  • The Fed is extracting liquidity, along with other Central Banks slowing bond purchases, and;
  • Further increases in interest rates will only act as a further brake on economic growth.

However, because optimistic analysis supports our underlying psychological “greed”, all real scrutiny to the contrary tends to be dismissed. Unfortunately, it is this “willful blindness” that eventually leads to a dislocation in the markets.

Wall Street is notorious for missing the major turning of the markets and leaving investors scrambling for the exits.

This time will likely be no different.

ORIGINAL SOURCE: Analysts’ Estimates Go Parabolic – Is The Market Next? by Lance Roberts at Real Investment Advice on 4/23/18