Thanks for this. Could P/Es just be pricing in more optimistic earnings, on the basis that higher inflation and, by extension, rates were priced into the most recent earnings forecast? What's the catalyst to change minds and trigger a sell-off (e.g., higher employment numbers, next inflation print, etc.)?
P/E often bottom about the same time earnings are starting to come lower. It then becomes a trade-off of how quickly eps falls vs. how much multiples rise. Multiples are correlated to the risk-free rate and the WACC. As bad news happens, we start to price rate cuts into the risk-free rate nd discount ratesa re affected. The catalyst for a sell-off would be an economy slowing faster than expected and/or earnings slowing more than forecast.
Thanks for this. Could P/Es just be pricing in more optimistic earnings, on the basis that higher inflation and, by extension, rates were priced into the most recent earnings forecast? What's the catalyst to change minds and trigger a sell-off (e.g., higher employment numbers, next inflation print, etc.)?
P/E often bottom about the same time earnings are starting to come lower. It then becomes a trade-off of how quickly eps falls vs. how much multiples rise. Multiples are correlated to the risk-free rate and the WACC. As bad news happens, we start to price rate cuts into the risk-free rate nd discount ratesa re affected. The catalyst for a sell-off would be an economy slowing faster than expected and/or earnings slowing more than forecast.
Sideways market would be AWESOME. appreciate the article, well written and well said.