bySam Ro
The stock market (^GSPC) continues to make new all-time highs. The popular explanation behind this move is President Donald Trump’s promise of tax cuts and deregulation, which would more than offset the negatives coming from protectionist trade rhetoric. However, Wall Street’s stock market analysts haven’t yet revised up their 2017 earnings forecasts for this bullish policy outlook. In fact, analysts have actually been reducing their forecasts for earnings since the election of Trump.
This contradiction between rising stock prices fueled by Trump optimism and deteriorating expectations for earnings exacerbated by Trump skepticism have pushed stock market valuations to frightening levels.
So, what’s happening?
Everyone except the stock market analysts are bullish
Goldman Sachs analysts recently reviewed the first quarter earnings announcements and analyst calls of S&P 500 companies, and they identified four major trends in sentiment: 1) “Managements are optimistic about potential corporate tax reform, but are concerned about the controversial border-adjusted tax;” 2) “Hopes for widespread deregulation and improved regulatory clarity are increasing confidence among some management teams;” 3) “Managers of industrial firms are enthusiastic about potential infrastructure spending and a possible end to the defense sequester;” and 4) “Management views are mixed on whether President Trump’s trade proposals will be constructive or will lead to damaging retaliation from US trade partners.”
Those first three positive trends appear to be overwhelming the one negative trend. And it’s reflected by an elevated level of optimism among managements, literally.
