Earnings point the way higher for stocks: Trader

The market has long been stuck in a remarkably tight trading range, with the S&P 500 remaining in a mere 95 point corridor since the first week of February. But according to S&P Capital IQ's equity chief investment officer, Erin Gibbs, earnings and valuation point the way out—and up.

"From a valuation perspective, the S&P 500 is trading at six-month lows," Gibbs wrote to CNBC. "The index has basically hovered between 17 times and 17.8 times forward earnings (with a couple very brief spikes) since February. Right now, the index is at 17 times, right at the bottom of the range."

Gibbs is referring to the most popular valuation metric for stocks, forward P/E, which compares the current price to analysts' estimates of total earnings over the next 12 months.

"Given that we don't expect a huge drop in the 'E,' I think the index is due to move back up toward the top of the range."

Read MoreThese 10 stocks crushed their earnings estimates

Gibbs additionally pointed out in a Friday "Power Lunch" segment that companies were able to produce much better earnings growth than anticipated in the second quarter, with profits coming in about flat from the year prior, compared to the expectation of a 4 percent drop.

Still, she doesn't see anything big occurring in the next few weeks.

The move she expects "may not happen until September," she said. "We have to get out of the summer doldrums first."


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more