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Earnings’ Sudden Resurgence Frightens Smart Investors

Earnings’ Sudden Resurgence Frightens Smart Investors

The S&P 500 just posted its highest earnings growth in six years. That means the stock market should be surging, right?

High earnings growth means the stock market should be surging, right? Instead, we have a fearful market that isn’t sure how to process what’s going on.

Instead, what we have is a fearful market that isn’t sure how to process what’s going on.

The reason behind this is simple. Smart investors don’t buy stocks because of what’s going on right now, or what’s gone on in the past. Smart investors buy stocks when they see a bright future.

Back in the spring of 2016, the market had just gone through a very quick correction that resulted in the worst opening week to a year in history.

Everyone was saying that 2016 would be the next 2008. And then in mid-March, the earnings numbers came out for the end of 2015.

It wasn’t pretty. Earnings were down over 15% from the previous year.

And what did the market do? In just a month and a half, from the start of March to mid-April, it rallied about 15%.

That’s what the market gains, on average, over two years.

It does seem strange that the market rallied on bad earnings. But remember, smart investors look forward. They don’t worry about the present.

Smart investors knew this turnaround was coming, so they bought into it.

So what the current state of the market really means is that people are not sure about what lies ahead in terms of growth.

Going from over a year of subzero growth to 16% within a few months is frightening to smart investors.

Who knows if this growth will continue? The smart mindset is to pull out money, and wait and see.

Regards,

Ian Dyer
Internal Analyst, Banyan Hill Publishing

About The Author

Ian Dyer

Ian Dyer is one of the top internal analysts and editors for Banyan Hill Publishing, working from our Baltimore office. He graduated from Duquesne University with a degree in Finance and has continued to be involved with the Chartered Financial Analyst (CFA) community since then. After taking part in the CFA collegiate research skills competition in 2014, he passed all three levels of the CFA exams. Passing the CFA exams demonstrates an analyst’s thorough command of economics, accounting, portfolio management, stock and bond valuation, and more. As a regular contributor to both Sovereign Investor Daily and Winning Investor Daily, Ian has utilized these skills to analyze valuable investment recommendations for Banyan Hill’s 300,000 readers. By joining Paul Mampilly as an internal analyst across his various services — in addition to co-editing Paul’s latest services, Rapid Profit Trader and The $10 Million Portfolio — Ian has cemented his place in the investing elite.

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