Analysis Topic: Companies Analysis

The analysis published under this topic are as follows.

Tuesday, February 01, 2022

Stock Market Sentiment Speaks: It's Time To Invest Based Upon Corporae Earnings / Companies / Stock Market 2022

By: Avi_Gilburt

We have all heard the phrase “earnings are the mother’s milk of stocks.” I believe the phrase was coined by Larry Kudlow. In fact, I have some commenters to my articles that claim that earnings are the only thing one needs to know about investing in the stock market.

But, is it true?

Bob Prechter has done some research into this topic, and has outlined some very interesting market history that flies in the face of the common perception regarding earnings: The Myth of Company Earnings and Stock Price

Are stocks driven by corporate earnings? In June 1991, The Wall Street Journal reported on a study by Goldman Sachs’ Barrie Wigmore, who found that “only 35% of stock price growth [in the 1980s] can be attributed to earnings and interest rates.” Wigmore concludes that all the rest is due simply to changing social attitudes toward holding stocks. Says the Journal, “[This] may have just blown a hole through this most cherished of Wall Street convictions.”

What about simply the trend of earnings versus the stock market? Well, since 1932, corporate profits have been down in 19 years. The Dow rose in 14 of those years. In 1973-74, the Dow fell 46% while earnings rose 47%. 12-month earnings peaked at the bear market low. Earnings do not drive stocks.