The only way equities look cheap on a through-the-cycle earnings basis is if earnings are heading higher and stay higher (through the cycle). It so happens that the sell-side consensus expects this. It is forecasting 30% EPS growth over the next two years for developed world equities. This implies margins and profit shares at significant new all-time highs.
Click on chart to enlarge, courtesy of Morgan Stanley.
Well, at the end he made the conclusion as follows:
But the bigger-picture point is that equities have priced in a higher structural range for earnings. Equities may be cheap if earnings move into a new, even higher range. Otherwise, they appear expensive or very expensive.
Unusually bearish for sell-side consensus?
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