The headlines are right now pointing out that we have just come off of the best quarter for the S&P 500 since 2009. However, reporters sometimes forget that Q4 2018 was the worst fourth quarter in 75+ years, an equally newsworthy financial fact. Big up quarters often follow big down quarters. The question is, was this price bounce warranted? That is much less obvious. Forward earnings are important to the direction of the financial markets, both equity and fixed income. We have seen a quarter where the price level of the S&P 500 jumped 13% while the consensus Q1 Earnings Per Share (EPS) fell –7.2% (see chart above). It is this paradox that gives sober commentators pause before praising the recent rally. In the chart below, we point out that during Q4 2018 estimated earnings fell –3.5% while the index fell –14.3%. This was probably too much of a price drop, but the opposite is probably true for the last three months. Index levels are close to where they were at the beginning of Q4 2018 while EPS have not recovered at all. This quarter has been a very forgiving quarter with revenue and earnings misses being punished at the lowest rate in five years. We will see if this keeps up in the next three months. The expectations have been set low, so there should not be too many misses, right?