After Adjusting To Dovish Fed Tone And Improving Energy Fundamentals, markets need to see Profit Growth To Move Higher; Otherwise A Flattening Trend Could Linger

Portfolio Advisory Group

April 5, 2016

Canadian and U.S. equity markets have recovered from the slump earlier in the year and are now trading near YTD highs. It is important to note that this improvement has been driven purely by sentiment, as earnings estimates have actually grinded lower since the beginning of the year. This means that valuation (forward 12-month P/E) has retraced to the high end of the historical range (S&P500 and S&P/TSX Composite both currently at 16.7x), suggesting that any further meaningful upside now has to come from earnings growth. With global growth estimates being steadily reduced, we think it will be challenging to achieve the positive earnings revisions that are needed to sustain a market rally.

Read More…