Here's the problem with this earnings season

A worker takes oil samples from a well at the Gazpromneft-owned Yuzhno-Priobskoye oil field outside the West Siberian city of Khanty-Mansiysk, Russia. Sergei Karpukhin | Getty Images

There's a problem with earnings this season: stocks are trading at the high end of their trading range and are also expensive. The failure of the Doha meeting to produce a production

freeze is causing a predictable drop in Energy stocks worldwide, though perhaps not as much as market participants were talking about last week. High-beta names like Chesapeake Energy and

Devon are down about 4 percent, but large oil like Chevron started down only fractionally and some have turned positive. The big issue is, what happens to Energy stocks from here? A few

thoughts: 1) The stocks have generally outperformed this year—The Exploration & Production ETF is up nearly 8 percent year-to-date, handily outperforming the S&P 500. Valuations are

way ahead of themselves. Chevron, just as an example, is trading at a crazy 68 times 2016 earnings because everyone is assuming oil will recover toward the second half of 2016 and so big oil

is being priced on 2017 earnings (Chevron is a more reasonable 20 times 2017 earnings). In other words—many of these stocks are already discounting a significant rise in oil. 2) How much

more dilution? Several dozen Energy companies have issued more stock, the most recent of which was driller Ensco (ESV), which floated a secondary at $9.25 at the end of last week and was

deemed a success. But remember: Ensco was $19 a year ago. It's pretty hard to argue that issuing stock at half the price a year ago is a victory. 3) More M&A? Maybe, but just look

at what's happened to Halliburton-Baker Hughes. There's big political risk. Big oil is under a lot of scrutiny. Certainly with President Obama in the White House no big deal will

get through without a fight. After November, maybe. There's a similar problem with Industrials, which will begin reporting this week, including big names like Honeywell , Caterpillar,

Illinois Tool Works and General Electric. With the exception of GE, which is flat this year after a spectacular 20% rally in 2015, these big names are up double digits: INDUSTRIALS YTD

Honeywell up 10.7% Caterpillar up 15.2% Illinois Tool Works up 12.8% GE flat These stocks are rallying on two issues: 1) the lower dollar, and 2) less worry about a U.S./global recession.

But they seem to have overshot the target: most of the big names are trading at 19 or 20 times forward earnings. The problem is that the growth outlook still remains relatively weak, so we

are expecting very modest top & bottom-line growth (low single digits at the very best). Throw in the fact that we are entering a seasonally weak period for the group, and we are left

with the one hope that the commentary will be marginally above expectations. But hey—that worked for banks, right? The SPDR Bank ETF, a basket of big bank stocks, rallied 7 percent last week

because the news on bank earnings was less bad than feared. That could work for industrials—except they have already rallied as the banks were rallying. The SPDR Industrials ETF was up 2.5

percent last week while the S&P 500 was down fractionally. See the problem? Stocks are trading at the high end of their trading range (near historic highs) and are also expensive (or at

least "not cheap") by historic standards. It's hard to argue for stocks to break out convincingly without clearer signs of an economic breakout, which remains stubbornly

elusive. That's why so many strategists see a trading range for the remainder of the year. Hey, it could be worse. We were talking recession in February. A "solid hold" is a

lot better than two months ago.