The gap between estimates for the year ahead and actual earnings is now the widest since 2009.
Unlike 2009, the slump in earnings has not been accompanied by a global recession which would be followed by a sharp rebound in the economy and earnings.
For the past six months, global stocks have been supported by an improving earnings outlook, but with expectations stretched, stocks are vulnerable to a pullback if actual earnings fail to deliver on the promise of better growth.
After a year and a half of cutting their earnings estimates for the world’s companies by a total of 14%, analysts have spent the past six months raising them. Are they now expecting too much?
Since the end of February, the trends in earnings estimates for the coming year and actual earnings over the past year have headed in different directions, as you can see in the chart below.