Investors should expect terrific earnings reports in a couple of weeks, but they’re unlikely to revive a gassed stock market, my Barron’s colleague Avi Salzman writes.
Earnings are projected to rise 17.3% in the first quarter, the best performance in seven years. But last year’s stock gains cannibalized the gains we should be seeing now, because they priced in 2018’s earnings growth.
“Last year was all about rising valuation on no earnings, and this year is all about falling valuations on good earnings,” Jim Paulsen, chief investment strategist at the Leuthold Group, tells Salzman. “The market used up its excess valuation. We had 2% Treasuries, 2% real growth and no inflation.”
In fact, earnings growth is taking a back seat to inflation and rising interest rates as investors’ top concern. Paulsen sees the CPI hitting 3% by the end of the year. “Paulsen is worried both about the potential for stagflation–higher inflation with a stagnating economy–and margin erosion–corporations earning less income for each dollar in revenue,” Salzman writes.