Why valuation is a ‘terrible’ timing tool for markets

As the S&P 500 (^GSPC) approaches the 6000 level in the final quarter of the year, market uncertainties loom, particularly as the third quarter earnings season unfolds. Charles Schwab chief investment strategist Liz Ann Sonders joins Morning Brief to share her perspective on the current market. Sonders highlights an “interesting” aspect of this earnings season. Following the second quarter, companies’ guidance led analysts to “basically cut in half” their estimates for the third quarter while leaving fourth quarter projections untouched. This adjustment, she notes, has set a lower bar for current results. While third quarter earnings have been outperforming so far, Sonders emphasizes, “It’s the outlook for the fourth quarter and into 2025 that I think is particularly important.” Addressing concerns about high market valuations, Sonders argues that valuations are “a terrible, terrible market timing tool,” explaining that they fluctuate, becoming rich and even richer or falling, serving more as “an indicator of sentiment.” “Stocks are richly valued, but they can get more so,” Sonder adds, suggesting there’s no significant evidence linking valuations directly to returns.
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