As we head into the heart of earnings season, amid the drastic slashes in guidance that we have seen in the last few weeks (for example here [4] and here [5]), we thought the following six charts may shed some further light (in addition to this eye-opening chart [6]) on what is going on under the covers of the multiple-expanding, fundamentals-don't-matter, unreality that is the US equity market...
First things first, it's all beta, no alpha all the time...
[7]
and valuation differences have compressed to near-record lows (i.e. everything is floated by the same multiple-expanding hope-driven liquidity fuel)...
[8]
and asset appreciation has entirely disconnected from real earnings growth...
[9]
and it's all driven by a screaming surge in margin improvement expectations... (be careful what you wish for equity assset managers who are calling for bond markets to collapse - if rates rise, this margin is gone...)
[10]
and the margin improvement is across everything!! 91% of the S&P 1500 companies are expected to increase margins in the next year!!!
[11]
as Earnings have been moving in one direction for two years...
[12]
Charts: Morgan Stanley