A continuation of EPS downgrades from here might become a problem for market direction given that current
P/E multiples are at multi-year highs. Elevated equity valuations offer little cushion against potentially another
round of earnings cuts.
Given this, the Q2 reporting season, which is starting in earnest this week, will be closely watched by investors.
We find the general sentiment to be nervous following last week’s weakness in European stocks. Many fear that
potential earnings disappointment could lead to further increase in market volatility.