Our criticism of the widespread trust in “forward earnings” has sometimes been harsh, but consider the following: the latest 12-month forward EPS estimate for the EAFE index is $122.71, virtually matching the forward estimate that was made in January 2006.
Amid all the praise heaped on the corporate sector for posting record earnings in the midst of a sluggish global expansion, allow us a respectful vote of dissent. Earnings are abysmal—especially among the S&P 500 companies presumed to be the torch-carriers for this cycle’s profitability rebound.
Consumer Discretionary sector weightings sank among all three market tiers, as this segment led the market lower in January. Health Care and Utilities sector weightings increased, as both outperformed for the month.
On a YTD basis, the spread between these two indices continues to expand, with the Equal Weighted index now outperforming by more than 4%. Consumer Staples is the most expensive sector among Large and Mid Caps, while Health Care is most expensive in Small Caps.