The proprietary expectation ratio continues to show signs of improvement. The indicator is the ratio of analyst expectations vs. actual corporate earnings. The important difference between this indicator and a typical earnings chart is that it includes the psychological side, i.e., the market’s expectations. Earnings are only a good indicator in terms of what the market expects. For instance, AAPL can report 30% year over year growth, but the numbers are only as good in terms of the markets expectations. If expectations are for 35% growth then the quarter is a disappointment.
The indicator continues to improve as more and more companies report during the quarter. I see this as a highly positive development. The indicator was early to turn negative in 2007 and will likely be early to turn in 2009.
![Cullen Roche](https://pragcap.com/wp-content/uploads/2022/01/Headshot2022-1-144x144.png)
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.