Morning Notes — Attempt to Define Near Term Risk

At current levels, the S&P 500 trades at ~18.4x our 2020 EPS estimate of $180. There’s probably room for even more multiple expansion given the current state of policy accommodation and expectations for improved fundamentals in the months ahead. Consensus expectations for Q4 S&P 500 earnings growth is -1% year-over-year and we should have a large enough sample by mid-next week to determine if expectations are too low/high. But lower than expected earnings and data in the near term could still get a pass as investors will likely wait until March before judging the trade-linked upside to growth and EPS.  It’s also possible for Boeing-related issues to push expectations further into April/May. To us, it seems the near-term risk for equities might end up being Fed messaging. The intention behind recent Fed balance sheet expansion was to counter short-term liquidity issues in the repo market, not to expand equity multiples.