Chart of the Week - Earnings Euphoria

Chart in-focus from the latest Weekly S&P500 ChartStorm

Note: this is a new series for free subscribers and is intended to give an insight into the work that goes into The Weekly ChartStorm + provide a little further explanation on charts and concepts.

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This week’s chart pretty much speaks for itself (+has just made a new all-time high).

To clarify, what we are looking at here is the estimated annualized compound growth rate expected by sell-side analysts over a three to five-year horizon aggregated for the S&P500.

i.e. consensus earnings growth expectations.

Or as I like to call it: Wall Street analyst sentiment.

And like all good sentiment indicators there are elements of truth and elements of emotion all mixed up in it.

In boom times euphoria takes hold and analysts raise their estimates as stock prices punch higher, new paradigm narratives take hold, and ultimately expectations end up overestimating even the best fundamentals.

In doom times pessimism reigns, and analysts slash their estimates as the economy stalls, stock prices plunge, and gloomy estimates dramatically undershoot even the worst downturns in earnings.

As things stand right now it is clearly in euphoria mode.

Some will argue that there is good reason for this, and as I noted they will be right that some of it is well-reasoned and true. But there is clearly a powerful sentiment and story dynamic that has swept up even the most sober analysts. And I would say that this is good example on both fronts.

Bottom line: consensus earnings growth estimates have reached an all-time high.

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Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

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