Altitude Sickness

Check out the accompanying pdf and chart collection. Executive Summary: As analysts’ earnings estimates have scaled new heights this year, investors have experienced valuation altitude sickness, which may soon be resolved by the drop in P/Es since the start of the year. Or it may resolve in a much more sickening fashion if a recession sends earnings expectations—and valuations—hurtling downward. …. A recession still isn’t our base case; we give it 40% odds. Notably, our forecasts for S&P 500 earnings and price targets assume that no recession is coming anytime soon. … To us, the latest economic indicators suggest a slowly growing economy headed for a soft landing, not a hard one. … Also: Wage inflation may be peaking.