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Without the boost from energy, earnings expectations are 'cut in half,' analyst says

  • Christine Short, senior vice president at Estimize, says stocks "might be priced to perfection."
  • Earnings expectations are cut in half when the energy sector is removed from the equation.
  • Consumer discretionary spending will disappoint, Short said.

Are stocks overpriced? One analyst says the market may be at its upper limit.

Equities "might be priced to perfection," Christine Short, senior vice president at financial estimates platform Estimize, said Thursday on CNBC's "Power Lunch." The earnings forecasts for the second and third quarters of 2017 "are starting to come down a little bit, as far as analysts and corporate guidance goes," she said.

Short said that while investors' bottom line expectations are currently high, the numbers have fallen since the first quarter — and would be even lower, but for a big boost from the energy industry.

"If you pull out energy," Short said, citing the industry's massive growth rate from the prior year, "earnings expectations are actually cut in half. So we're really only looking at 4 percent bottom line growth."

"What you have to start to ask yourself is, 'Is that enough to justify the current rally?'" she said.

Christine Short, Estimize
Scott Mlyn | CNBC
Christine Short, Estimize

Some analysts say the growth of the energy sector is mostly due to a poor showing in the previous year. S&P Capital IQ, which also expects the energy sector to lead market growth in 2017, projects energy earnings to grow by 387 percent for the second quarter.

Short said that the impact of wages will make consumer discretionary spending the sector most likely to disappoint. The group, which includes cars, clothing and entertainment spending, is "the only sector expecting negative numbers this quarter."

"We've had quite a few names that have reported thus far mentioning the negative impact of labor costs," Short said. "So, I think we're going to see that a lot more as more of these companies report."