Reporting season is underway — look sharp.
The next couple of days will likely set the tone, with sentiment-shaping numbers coming from JP Morgan on Wednesday ahead of third-quarter results from Goldman Sachs and Citi the next day. Bank of America Merrill Lynch will report on Friday.
Readers will remember that it was Goldman’s rip-roaring second-quarter earnings that poured petrol on the then flickering rally.
But expectations were delicate. Now consensus is pricing in a very sharp recovery for corporate earnings next year.
Anything but strong results and positive forecasts from the two Wall Street banks could see the wider market wobble.
Global corporate earnings, excluding financials, are signalled to rise by 30 per cent in 2010. This, Societe Generale’s Andrew Lapthorne notes, is a big ask.
Regionally the market expects a 24 per cent earnings bump in the US, a 28 per cent rise in Europe, while Japanese equities are pricing in a 185 per cent increase.
Lofty earnings expectations beget lofty valuations.
The 12-month forward PE ratio on the global equity market stands at around 15x. This compares with an average forward PE of 14.8x during the last bull market between January 2004 and August 2007, which on the face of it would suggest global equities are no longer cheap.
Whether the market can justify its current bout of enthusiasm depends on the 2010 forecasts we hear over the next week.
Related links:
Mystery Meredith Whitney Goldman downgrade – update – FT Alphaville
Fuming with Dave – FT Alphaville
European equities trump high quality credit, MOST says – FT Alphaville