As another earnings season nears, something strange is happening: Stock valuations are falling while earnings estimates are climbing, Craig Basinger, chief market strategist of Purpose Investment Inc., said in a note on April 6. “That’s not supposed to happen,” he said, adding he expects the dynamic to right itself with rising stocks prices. To be sure, the Middle East conflict is a complication and the inflationary forces it has unleashed on energy and commodity prices could end up eating into margins, he said. “For now, the base case remains intact, just with a slimmer margin for error than we had in January,” Basinger said. Where should investors be looking? TSX energy stocks’ forward earning have risen more than 10 per cent in the past month, while S&P 500 index energy stocks posted a one-month forward earnings increase of more than 20 per cent, he said. Basinger thinks energy is at “peak momentum” and Purpose has been trimming back. The TSX’s materials sector has posted a 20 per cent earnings revision over the past three months on a commodity “tailwind.” Even though gold has pulled back, the bigger picture looks good, Basinger said.  “Industrials, meanwhile, are steady, with recent momentum intact. Nothing flashy, but nothing to worry about, either. Sometimes boring is good,” he said.