A version of this post first appeared on TKer.co 

The forward price-earnings (P/E) multiple has limited value during normal times.

And the metric arguably has even less value during periods of elevated uncertainty.

That’s because the E is based on analysts’ estimates for the near future. And when the outlook for business is increasingly uncertain and rapidly changing, it can take time for many analysts to adjust that E.

This is especially the case right now as many companies have not yet factored the impact of tariffs into their guidance, which analysts lean on when they establish their earnings forecasts.

“We’ve been reading earnings call and conference transcripts closely since November across market capitalizations, sectors, and industries and feel fairly confident in saying that U.S. public companies have been very reluctant to discuss tariff impacts (outside of China) until specific details have been provided by the administration, and even then, many still have not given sell-side analysts a lot of specifics to start factoring into their models,” RBC’s Lori Calvasina wrote earlier this month.

Assuming tariffs are negative for earnings — which is what everyone assumes — this means the E is being distorted higher by stale estimates.

Forward earnings estimate haven’t really moved amid the market sell-off. (Source: FactSet)

With stock prices falling the way that they have been in recent weeks, the P/E ratio could be creating the illusion that stocks have gotten cheaper than they are in reality.

Forward P/E ratios have come down. But is the E accurate? (Source: FactSet)

Generally speaking, it’s not a great idea to be trading in and out of the stock market, especially during periods of stress. It’s especially treacherous to be trading based on P/E ratios, more so when the Es are unreliable.

Unfortunately, we might not get a clean E any time soon.

“There is a reasonable probability that absent some resolution/clarity, transparency could be compromised,” BofA’s Savita Subramanian wrote on Thursday. “Companies tend to shut down guidance amid uncertainty.”

This sentiment is in line with Goldman Sachs’ David Kostin, who expects “during upcoming quarterly earnings calls fewer companies than usual will provide forward guidance.” This is because recently announced tariffs have made it very difficult to project where business is headed.

If you’re going to trade, be careful about trading based on expectations for the near future. The savviest minds in the market caution this is a guessing game.

There were several notable data points and macroeconomic developments since our last review:

👍 Inflation cools. The Consumer Price Index (CPI) in March was up 2.4% from a year ago, down from the 2.8% rate in February. Adjusted for food and energy prices, core CPI was up 2.8%, down from the prior month’s 3.1% level.

(Souce: @M_McDonough)

On a month-over-month basis, CPI fell 0.1% amid lower energy prices. Core CPI was up just 0.1%. If you annualize the three-month trend in the monthly figures — a reflection of the short-term trend in prices — core CPI climbed 3.0%.

(Source: Jason Furman)

For more on inflation, read: The end of the inflation crisis 🎈and The Fed closes a chapter with a rate cut ✂️

⛽️ Gas prices tick lower. From AAA: “Prices at the pump are coming down even though this is the time of year when gas prices go up. Supply and demand are the main reason for the dip. After OPEC+ announced it’s increasing oil production next month by more than 400,000 barrels a day – much more than expected – the price of crude oil has been falling. Oversupply coupled with tepid gasoline demand is resulting in lower pump prices.”

(Source: AAA)

For more on energy prices, read: Higher oil prices meant something different in the past 🛢️

💼 Unemployment claims tick higher. Initial claims for unemployment benefits increased to 223,000 during the week ending April 5, up from 219,000 the week prior. This metric continues to be at levels historically associated with economic growth.

(Source: DoL via FRED)

For more context, read: A note about federal layoffs 🏛️ and The labor market is cooling 💼

👎 Consumer vibes tumble. From the University of Michigan’s April Surveys of Consumers: “Consumer sentiment fell for the fourth straight month, plunging 11% from March. This decline was, like the last month’s, pervasive and unanimous across age, income, education, geographic region, and political affiliation. Sentiment has now lost more than 30% since December 2024 amid growing worries about trade war developments that have oscillated over the course of the year. Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month.”

(Source: University of Michigan)

Politics clearly plays a role in peoples’ perception of the economy:

(Source: Michael McDonough)

Notably, expectations for inflation appear to be a partisan matter. From Bloomberg’s Michael McDonough: “Democrats’ inflation expectations continue to rise (7.9%), while Republicans’ expectations, though still much lower (0.9%), are trending upward. Trend suggests some bipartisan agreement that tariffs may be inflationary. Independents are moving with Democrats.”

(Source: Michael McDonough)

For more on sentiment, read: Beware how your politics distort how you perceive economic realities 😵‍💫

👎 Small business optimism falls. From the NFIB’s March Small Business Optimism Index report: “This year will be one ruled by uncertainty. Global and domestic actions are generating insecurities in abundance, both political and economic. President Trump’s administration is rearranging the deck chairs at a record pace…”

(Source: NFIB)

For more on the state of sentiment, read: Beware how your politics distort how you perceive economic realities 😵‍💫

Notably, the more tangible “hard” components of the index continue to hold up relatively well.

(Source: NFIB)

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

For more on this, read: What businesses do > what businesses say 🙊

💳 Card spending data is holding up. From JPMorgan: “As of 01 Apr 2025, our Chase Consumer Card spending data (unadjusted) was 4.7% above the same day last year. Based on the Chase Consumer Card data through 01 Apr 2025, our estimate of the US Census March control measure of retail sales m/m is 0.40%.”

(Source: JPMorgan)

From BofA: “March card spending per household was up 1.1% year-over-year (YoY), according to Bank of America aggregated credit and debit card data. Seasonally-adjusted card spending per household rose 0.2% month-over-month (MoM).”

For more on the consumer, read: Americans have money, and they’re spending it 🛍️

🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.62% from 6.64% last week. From Freddie Mac: “The average 30-year fixed-rate mortgage continues to trend down, remaining under 7% for the twelfth consecutive week. As purchase applications continue to climb, the spring homebuying season is shaping up to look more favorable than last year.”

(Source: Freddie Mac)

There are 147.4 million housing units in the U.S., of which 86.9 million are owner-occupied and about 34.1 million of which are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.

For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation

🏢 Offices remain relatively empty. From Kastle Systems: “Peak day office occupancy was 63.5% on Tuesday last week, down one tenth of a point from the previous week and half a point from its record high in February. Los Angeles set a new single-day record high of 57.2% on Wednesday. Occupancy in Washington, D.C. peaked on Tuesday at 62.9%, up 1.5 points from the previous week and only two tenths of a point lower than its record high set in March.”

(Source: Kastle)

For more on office occupancy, read: This stat about offices reminds us things are far from normal 🏢

🇺🇸 Most U.S. states are still growing. From the Philly Fed’s February State Coincident Indexes report: “Over the past three months, the indexes increased in 45 states, decreased in three states, and remained stable in two, for a three-month diffusion index of 84. Additionally, in the past month, the indexes increased in 38 states, decreased in six states, and remained stable in six, for a one-month diffusion index of 64.”

(Source: Philly Fed)

📉 Near-term GDP growth estimates are tracking negative. The Atlanta Fed’s GDPNow model sees real GDP growth declining at a 2.4% rate in Q1. Adjusted for the impact of gold imports and exports, they see GDP falling at a 0.3% rate.

(Source: Atlanta Fed)

For more on GDP and the economy, read: 9 once-hot economic charts that cooled 📉 and You call this a recession? 🤨

🚨 The tariffs announced by President Trump as they stand threaten to upend global trade — with significant implications for the U.S. economy, corporate earnings, and the stock market. Until we get some more clarity, here’s where things stand:

Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Job creation, while cooling, also remains positive, and the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market.

But growth is cooling: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like excess job openings have faded. It has become harder to argue that growth is destiny.

Actions speak louder than words: We are in an odd period given that the hard economic data has decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Stocks are not the economy: Analysts expect the U.S. stock market could outperform the U.S. economy, thanks largely due to positive operating leverage. Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Mind the ever-present risks: Of course, this does not mean we should get complacent. There will always be risks to worry about — such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, cyber attacks, etc. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect to experience as they build wealth in the markets. Always keep your stock market seat belts fastened.

Think long term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak long-term investors can expect to continue.

A version of this post first appeared on TKer.co