Stocks Follow Earnings

Stock prices follow earnings estimates, pure and simple.  If you doubt that premise than look at the chart above.  You can see how stock prices respond when earnings estimates are increasing versus declining or flat.  It's hard for stocks to move higher when earnings are going nowhere and they go in freewill when earnings collapse as they did back in 2007 through early 2009.  Current forward estimates for the S&P 500 are in the $142-143 range for 2018.  That gives the S&P 500 a forward PE of roughly 18.20.   That may be considered high by historical standards but it's not as high as it was at the peak of the last bull market and it's not considered by many as high in an environment where interest rates are likely to stay lower than their average mean, where the economy is growing around 3% and where earnings have the potential to increase by 10% year over year.

We own ETFs related to the S&P 500 in client and personal accounts. Short S&P 500 in a personal account as part of a separate individual strategy. Positions can change at any time without notice on this blog or via any other form of electronic communication.

Link:  Disciplinedinvesting.blogspot.com, "Answering Market Questions Over Thanksgiving" via Abnormalreturns.com: /2017/11/26