The stock market has gone from a short term oversold condition to an overbought condition very quickly. The market has rallied about 5% from the low at the end of January. At the same time, earnings estimates for 2015 have been slashed, expecting only 3% growth. You can see from the chart below, the first quarter earnings estimates from “Wall Street” analysts have come down by -7.4%. It looks like a pothole. The market seems to be making the assumption that oil prices and currency are going to normalize in the back half of the year which we do not see as being the case. However, we think oil may have found a bottom. If things stay status quo, a 5% to 7% decline in earnings is more likely.
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