U.S. corporate results and profit outlooks are becoming increasingly important in sustaining investor optimism in a stock market rally that has driven valuations close to a 20-year high.
But with the S&P 500 up about 70per cent from its March lows, the earnings season could present an important test of whether the rally has run ahead of fundamentals, a key worry of investors who believe unparalleled fiscal and monetary spending have fueled excessive risk-taking. Among those recently reporting was Goldman Sachs Group Inc, which posted a blockbuster fourth-quarter profit on Tuesday. Goldman executives warned, however, that the capital markets activity that fueled results lately will probably slow down.
“Absolute valuations, by any historical measure, are extremely high," said Lerner."However, so is everything else, and you still have to look for relative investment opportunity.”
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