Does the Market Have an Earnings Problem?
Earnings drive stock performance … Luke Lango is bullish on earnings … but what about Walmart? … Louis Navellier sells an AI energy play … Grok-3 for the win
We can speculate about Trump tariffs… inflation… interest rates… geopolitical risk… or any other market influence on your mind…
But at the end of the day, whether your stocks go up or down depends on one thing:
Earnings.
In the long run, the strength (or weakness) of earnings drives stock performance.
To illustrate this, below is a chart spanning from 1945 to Q3 of last year. It compares the S&P’s price to its trailing 12-month operating earnings.
Notice two things…
First, over the long-term, these two lines have an amazingly strong correlation. This underscores our point: In the long-run, earnings drive stock prices.
Second, notice how the S&P’s earnings line (in blue) is smoother than the S&P’s price line (in green). And though price bounces around, it always eventually returns to its earnings line, a bit like a magnet.
Price can deviate from earnings for stretches due to investor euphoria or despondency, but it always reverts to earnings…eventually
This is what’s behind much of Luke Lango’s current bullishness.
For newer Digest readers, Luke is our technology/hypergrowth expert, and the analyst behind Innovation Investor.
From Luke:
Over the past few weeks, companies across America have been reporting fourth-quarter earnings results. So far, those numbers have been very strong.
