Even without a "disastrous" earnings season, would the S&P 500 still fall 15%?
The only way for US stocks to stabilize is if the guidance in the financial reports suddenly becomes excellent.
Due to the fact that the financial reports of banking giants were not as bad as expected, investors are looking forward to the financial reports of tech giants this week.
Matt Maley, Chief Market Strategist at Miller Tabak, said that even without a "disastrous" earnings season, the US stock market would face headwinds.
"The market is too expensive to maintain its current level... even if this earnings season is only slightly disappointing," Maley said in a new report. "The only way the market can stabilize is if guidance suddenly becomes very good."
Therefore, as we approach the "substance" of the earnings season, he recommends focusing on changes in long-term earnings - expected performance over the next 12 months - as a broader measure of the market.
Maley pointed out that in the past two or three quarters, some bears have been predicting a sharp drop in valuations that would trigger stock sales, but this has not happened. One reason, he said, is that most analysts have made good adjustments after the earnings season.
But even if earnings expectations for 2023 don't fall in the near future, he doesn't think they'll stay high for too long.
In any case, the expected P/E ratio of the S&P 500 index is 19 times, based on the company's earnings estimates for the past 12 months - still too expensive.
The strategist reiterated his view that the S&P 500 index still needs to fall 15% to be in line with historical "fair value" levels.
He added that this does not include the fact that the market could enter undervalued territory before hitting bottom in a bear market.