Monday, June 19, 2006
So says Bob Froehlich.
Careful with this one. More often than not big turns in the market don't occur because of earnings. Big turns happen for many reasons besides earnings.
The internet bubble was not about earnings as those companies had no earnings. The short, but painful, selloffs of 1997 and 1998 were caused by external shocks. The tech crash, it could be argued, was not about earnings because again net stocks really had no earnings. The nasty decline in summer 2002 was about things like tension between India and Pakistan (do you even remember that one?), worry about CEOs certifying earnings and more tech bubble fallout. The run up in 2003 was probably more about things like tax cuts than earnings. We may still be trying to figure out what the current decline that started six weeks ago is about but earnings is far down on the list.
The big one, the crash of 1987 was more about rising rates than earnings.
This repeats over and over. I'm sure a good historian can find a time when earnings was the thing but that is more the exception than the rule.
This is not to say earnings are worthless, far from it in my opinion, but in circling back to this morning's post there is not much predictive value for assessing the stock market in earnings or PE ratios.
Posted by Roger Nusbaum at 12:12 PM