In addition to largely ignoring economic data, the stock market's rally is defying cratering earnings per share estimates.
By the numbers: During the first five months of 2020 the bottom-up earnings per share estimate for S&P 500 companies — an aggregation of the median 2020 EPS estimates for all the companies in the index from FactSet — has fallen by 28% (to $128.03 from $177.82).
- That's the lowest EPS estimates have been in the history of FactSet's data, which goes back to 1992.
- During the past five years, the average decline in the annual EPS estimate during the first five months of a year has been 1.3%, and for the past 20 years, the average decline for the first five months of a year has been 2.4%.
What's happening: "The market is broken," Joe Brusuelas, chief economist at RSM International, said in an interview with CNN Business.
- "It no longer reflects a forward outlook that is truly aligned in the real economy," he said. "That's a problem because, at some point, the public will say these markets are rigged."
On the other side: Barry Knapp, managing partner at Ironsides Macroeconomics, argues that valuations are simply useless in the current climate.
- “It’s the beginning of a new business cycle. You shouldn’t get all beared up, and you’re not supposed to focus on valuations," he told CNBC. "This is the early stage of the business cycle."