The expectation ratio marked a new annual high this week hitting 1.58. The indicator which is made up of almost a dozen different earnings components, compared to current expectations, measures the likelihood of future strength in earnings. With the ER reaching a new high one can only conclude that expectations for the earnings outlook remain far too low and companies have plenty of room to maneuver and toy with the analysts this earnings season. Another quarter of beat and raise should shock the analyst community. Price target increases and stock upgrades will be the likely aftermath. I continue to think short strategies and market neutral strategies will underperform over the coming 4 weeks.
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.