Since the time of buttonwood trees, Wall Street has had its
own version of the Ten Commandments — the cornerstone principles
of conventional economic wisdom. The first of these writ-in-stone
notions is the widespread belief that earnings drive the
stock market.
By this line of reasoning, knowing where a market’s prices
will trend next is simply a matter of knowing how the companies
that comprise said market are expected to perform. On this,
the recent news items below capture the public’s devoted following
of earnings data:
- “Stocks Rebound As Investors Await Earnings.” (Associated
Press) - “US Stocks Drop As Earnings Data Fall Short” (MarketWatch)
- “Sideways Market Looks For Direction: Earnings
Could Point The Way” (MarketWatch)
In reality, though, much of this belief is based on faith, not facts. While
earnings may play a role in the price of an individual stock,
the stock market as a whole marches to a different drummer.
You get this ground-breaking revelation in the FREE report
from Club Elliott Wave International (Club EWI, for short)
titled “Market
Myths Exposed.” In Chapter One, our
editors shatter the smoke-screen surrounding the widespread
notion that “Earnings Drive Stock Prices” with these
enlightening insights:
- “Quarterly earnings reports announce a company’s achievements
from the previous quarter. Trying to predict futures prices
movements based on what happened three months ago is akin
to driving down the highway looking only in the rearview
mirror. It leaves investors eating the markets dust when
the trend changes.” - And — There is no consistent correlation between upbeat
earnings and an uptrend in stock prices; or vice a versa,
downbeat earnings and a decline in stocks. Case in point:
During the 1973-4 bear market, the S&P 500 plummeted
50% while S&P earnings rose every quarter over that period.
Here, “Market
Myths Exposed” provides
the following, visual reinforcement: A chart of the S&P
500 versus S&P 500 Quarterly Earnings since 1998.
As you can see, the market enjoyed record quarterly earnings
right alongside the historic, bear market turn in stocks
in 2000. Then again, the first negative quarter ever in 2009
preceded the March 2009 bottom in stocks.
“Market
Myths Exposed” dispels the top
TEN fallacies of mainstream economic thought. The misconception
that “Earnings Drive the Stock Market” is number
one. The remaining nine are equally capable of knocking
your socks off and most importantly, helping you protect
your financial future.
Get
the 33-page Market Myths Exposed eBook for FREE
Learn why you should think independently rather
than relying on misleading investment commentary and advice
that passes as common wisdom. Just like the myth that government
intervention can stop a stock market crash, Market Myths Exposed
uncovers other important myths about diversifying your portfolio,
the safety of your bank deposits, earnings reports, inflation
and deflation, and more! Protect your financial future and
change the way you view your investments forever! Learn more, and
get your free eBook here.
This
article was syndicated by Elliott Wave International and
was originally published under the headline Earnings Drive Stock Prices? See This Chart Before You Answer.
EWI is the world’s largest market forecasting firm. Its staff
of full-time analysts led by Chartered Market Technician
Robert Prechter provides 24-hour-a-day market analysis to
institutional and private investors around the world.
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