What to watch for in a pivotal earnings season

The Q2 earnings reporting season could be a pivotal one. Earnings reports and subsequent corporate guidance are likely to give investors greater clarity on whether the economy is softening into a slowdown or undergoing a soft landing and recovery. The preliminary picture is a fragile recovery. Forward guidance for Q2 has improved from Q1. Negative pre-announcements have fallen and positive ones have risen.
 The key question is whether this represents a data blip or the real signs of recovery. This matters because stock prices are facing substantial valuation risk. The S&P 500 is trading at a forward P/E of 19.3, which is higher than its 5-year average of 18.6 and 10-year average of 17.4, along with an elevated 10-year Treasury yield when compared to its 10- and 20-year history. The asset allocation case for equities has changed from TINA (There Is No Alternative) when rates were near zero to TARA (There Are Reasonable Alternatives) today. Any earnings disappointment could see stocks face substantial downside risk.
  
Here’s what I am watching. The full post can be found here.