Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Senior Macro analyst Christian Drake. Click here to learn more.
"... Valuation is Not A Catalyst: Valuation isn’t an anchor in our decision making process over shorter-to-medium-term durations but it is a prime factor for others so the influence on prices can’t be dismissed outright. With SPX forward earnings estimates up just +1.5% off the lows, multiple expansion has driven most of the rebound in prices off the February lows. Upside to cycle peak valuation (recorded in 1H15) implies +68 SPX handles or +≈3.3% from current levels. In other words, unless the thesis is for accelerating earnings, that’s the upside you’re playing for under an assumption for a return to peak multiples."