“Earnings drive the market” LOL

Stop it.

Ryan Detrick (Schaeffers) drops a vicious guest post at See It Market in which he debunks six popular trading myths. Here’s one of my personal favorites, the idea that earnings growth during any given year has any correlation with stock market performance…

Trading Myths – #6  Earnings Predict The Stock Market

So, how about this trading myth.  Last year the S&P 500 gained nearly 30%, while earnings jumped less than 6%.  Then again, earnings gained 6% in 2002 and the index lost 23%.  Or the huge 37% jump in earnings in 2010, while the S&P 500 gained just 12%.  Versus the flat earnings growth in 2009 and a nice jump of 23% on the S&P 500.  Maybe earnings growth doesn’t matter?

historical-sp-500-earnings-growth-and-returns

 

 

Ryan explains why the trend of earnings is way more important…

Or perhaps this is one of the trading myths that requires another layer of research.  So what should you be watching?  To me it is the trend of the earnings.  This seems to matter much more than the magnitude of the growth.

spx-vs-corporate-earnings-historical-performance-chart

Head over for the other five myths, this is a great post.

Source:

Market Masters: Trading Myths Revealed (See It Market)

 

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  1. Earnings & Returns: A Longer Look - Gordian Advisors commented on May 28

    […] growth and changes in P/E multiples. Josh Brown had a similar post on his Reformed Broker blog (“Earnings drive the market” LOL) that got me thinking about other ways to show this relationship. Frankly, after trying dozens of […]