Data Shows Analysts Increasingly in Sync with the Market

Recent data from Citigroup Inc. shows that monetary stimulus has “upended conventional market dynamics” and is facilitating a “re-emergence of an intuitive relationship in equity markets,” according to an article in last week’s Bloomberg.

In the period between 2012 and 2015, the article explains, the relationship between analyst opinions and market direction seemed to “break down” when global equities rose despite their downgrades. But Citigroup’s findings reflect that such opinion is now “moving emphatically in the same way as the stock market once more, after a long period when equities’ persistent gains seems to be thwarting fundamental analysis.”

Despite weaker profit projections, global stocks jumped during that period—bolstered by share buybacks and central bank stimulus. Citigroup’s data shows, “The S&P 500 added an average of 13 percent in each of those four years, defying dire prognostications.”

The fact that share prices are now rising along with corporate profit projections is “good news for active managers and stock pickers,” the article argues. However, it remains to be seen whether the “Trump-led regime shift sweeping global markets will normalize a bevy of other unconventional dynamics weighing on equity markets,” including “record U.S. corporate leverage.”

The analysts argue that the market’s earnings-per-share projections for next year could present a challenge for U.S. equities but add, “continued dollar strength and future tax cuts in the U.S. could make this achievable.”

EPS revisions