See: Stock Market’s Rosy View of Earnings
“Earnings can be volatile, even for the entire market. That is why revenue deserves more attention than it sometimes gets—and it provides scant reassurance.
After falling slightly in the third quarter, the S&P 500’s revenue grew by an estimated 3.7% in the fourth quarter and is expected to grow by just 1% in the first quarter. The implication is that much of recent earnings growth relies on expanding profit margins. Those already are above historical averages, though. The S&P 500’s price multiple of trailing 12-month earnings is nearly 18. That multiple would rise into the low-20s if margins reverted to past form.
Investors seem unconcerned, but they are paying prices today that assume a lot more great quarters.”
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