Expert insight

What earnings estimates miss about the equity market

August 29, 2022

A disconnect grows between market and analysts' views
Twelve-month-ahead earnings per share expectations have frequently tracked the S&P 500 Index over the last three decades but have diverged in 2022 as equity prices have fallen while earnings expectations have continued to increase.
U.S. equities still appear overvalued, but less so than at the start of 2022
The chart decomposes elements of the S&P 500 Index’s 13.3% decline in the first seven months of 2022. Interest rates and inflation explain 9.6 percentage points of the decline. Further considering a 0.7% gain in actual earnings growth and 7.5% growth in consensus earnings per share in the period yields an 11.9% implied decrease in market expectations for earnings.
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Contributor

Ian Kresnak
Vanguard Information and Insights

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