US economy and stock market analysis: Chart of the week

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Are stock prices too optimistic?

Jurrien Timmer recently noted how stock prices appear to have moved ahead of earnings, in both directions. The chart below shows the drawdown and subsequent recovery in the S&P 500 (SPX), overlaid against the drawdown in various earnings estimates. Those include fiscal years 2020, 2021, and 2022, as well as the next 12 months. He thinks that forward earnings estimates may be too optimistic, as they can have a tendency to be. Consequently, his guess is that the market—as of late May—is about 10% too high.

Source: FMRCo, Bloomberg

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