A Year of Upgrades in 16 Days
https://trendmacro.com/system/files/reports/20180116TrendMacroLuskin-1I.pdf
Tuesday, January 16, 2018
We rest our case that the tax cuts weren’t fully discounted. And they still aren’t.
US Stocks
FX
US Macro
S&P 500 forward earnings are up 4.8% since tax cuts were enacted 16 market days ago. Stocks have moved to new highs in tandem, proving that the tax cuts were not fully discounted. Sector performance is highly correlated to magnitude of estimate upgrades, with defensive sectors systematically underperforming. Weak USD has surprised the consensus, due to dis-preference for defensive assets. We expect more upgrades, and higher equity prices. The equity risk premium has not narrowed much, because higher prices have been supported by higher earnings. We will go on alert for the inevitable correction when the ERP moves to a new post-crisis tight. It’s not that far away.