Mother's Milk

Future earnings are the mother's milk for stock price growth.  Stocks are long duration assets and for the most part are priced off of the expected future growth of corporate earnings.  When corporate earnings projections are increasing as they were in 2017 and for most of 2018 stock prices will trend higher all things being equal.  The inverse then is also true.  Prices will adjust when earnings estimates start to decline or no longer advance.  

You can see this in the chart above.  Equity prices peaked in the summer and started to roll over as earnings estimates were slashed for 2019.  This culminated with December's Christmas Eve meltdown.  Stocks have rebounded since then as expected earnings growth has so far stabilized for this year.  My guess is the decline last fall represented the market adjusting to stagnant growth this year.  December's craziness had more to do with end of the year nonsense than anything else.  I think we're trading about where we would have been based on future growth without all of that volatility eight weeks ago.  

Where we go from here will have a lot to do with that expected projection of growth.  If EPS projections continue to get slashed then probability suggests stocks could have another  period of volatility in the coming months.  If the earnings picture becomes rosier then stocks have a higher probability of pushing higher.  

Back Friday.

Link:   Zerohedge.com: There Has Never Been a Month of January When all Major Assets Delivered Positive Returns

PS.  The article just linked is an interesting read.  Among other things it shows "that 2018 was the worst year on recon on terms of the percentage of global assets down on a dollar adjusted basis-with roughly 93% of all assets down for the year, worse even than the years of the Great Depression".