Inside Markets — Justified

In the short-term, stock prices rise and fall based on earnings estimate revisions – and estimates revisions have been higher this quarter. Blended Q2 earnings growth is up +10.5% YoY on revenue growth of +6.0% and an average profit margin exceeding 12%. This compares to expectations for +4.9% earnings growth, +4.0% revenue growth and margins at 12%. Blended Q2 earnings growth (NVDA due 8/27) for Mag 7 stocks is now +25.7% vs. expectations for +13.9% and the remaining 493 SPX come in at +6.3% vs. +2.5%. Upside revisions take year-ahead SPX EPS estimates to ~$309.20, which implies a forward multiple of ~20.5x. While a 20.5x forward multiple is elevated by historical standards, it is likely to remain elevated until there is a macro-led spike in implied volatility. To dust off an adage: “Bull markets don’t die of old age; they die of excesses, usually of speculation or tight monetary policy.”