Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Here's Why Stock Market Investors Should Ignore Corporate Earnings Season

Stock-Markets / Stock Markets 2016 Nov 14, 2016 - 03:22 PM GMT

By: EWI

Stock-Markets

Shattering the myth about earnings and the stock market

[Editor's Note: The text version of the story is below.]


It's earnings season, and most investors are paying close attention (Reuters, Oct. 9):

"If there's something that can help the outlook for earnings, then it's going to be good news for the stock market. It is the most important variable," said [a] chief investment officer.

The belief that earnings drive stock prices permeates Wall Street. That sentiment was also expressed in an Oct. 21 CNBC article:

Strategists are watching whether earnings growth will sustain further gains in the market.

But do corporate earnings really determine the stock market's trend? In a word, the answer is "no." Let's look at just one sample of the evidence from the February 2010 Elliott Wave Theorist:

The chart shows that in 1973-1974, earnings per share for S&P 500 companies soared for six quarters in a row, during which time the S&P suffered its largest decline since 1937-1942. This is not a small departure from the expected relationship; it is a history-making departure. Earnings soared, and stocks had their largest collapse for the entire period from 1938 through 2007, a 70-year span! Moreover, the S&P bottomed in early October 1974, and earnings per share then turned down for twelve straight months, just as the S&P turned up!

Many market commentators either ignore or are unaware of the evidence which challenges the bedrock theory that earnings drive stock prices.

Hence, investors feel safe when corporate earnings are good. They are wary when earnings are bad. These sentiments make sense in an exogenous-cause world. But, as the Theorist has noted:

Financial market prices are not set in an exogenous-cause world. You don't buy stocks on record earnings; you buy them on bad earnings.

The idea of buying stocks on awful earnings might seem radical, but think back to February-March 2009, when S&P companies were reporting losses, not gains. Even though most of the investment world was gripped with fear, a Special Investment Issue of the Theorist published on Feb. 23, 2009 and said:

I recommend covering our short position at today's close. ... Our main job is to keep the money we have. If we exit now, we will do that.

Just 10 trading days later on March 9, 2009, the Dow Industrials bottomed and has since advanced about 177%.

That market call was based on the Wave Principle, not an exogenous factor like corporate earnings. Remember, the Dow Industrials started its years-long advance when corporations were reporting losses.


Unleash the power of the Wave Principle

Much like a great sports play; to appreciate a great market forecast, you have to see it. In fact, we'd like to show you four. Our examples do indeed show what can happen when Elliott analysis meets opportunity. But we're not asking you to attend a class in 'good calls.' In each of these four markets, the unfolding trends have (once again) reached critical junctures. You really, really want to see what we see, right now.

Get your report -- How to Find Real Opportunities in the Markets You Trade -- FREE

This article was syndicated by Elliott Wave International and was originally published under the headline Here's Why Investors Should Ignore Earnings Season. 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.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in