Chart of the Day: Earnings Growth

This chart from the Wall Street Journal explains visually what worries me about the supercharged run up in the S&P500. While the index is increasing, earnings growth is not.

When the margin compression I am predicting occurs, earnings growth will turn negative. Over what time frame will all of this occur? That’s question number one. How can government stop this from tanking the US economy? That’s question number two. We are in an election year and so the Obama Administration will do its best to keep up as much economic stimulus as they can. I still don’t believe It will be enough but let’s see.

Source: Earnings Season: Don’t Get Your Hopes Up – WSJ

  1. David Lazarus says

    What ever the Fed does to keep the stock markets artificially inflated will be undone after the election anyway. What has been happening is a boost by the Fed to stock markets for the fabled Wealth effect. The wealth effect is an illusion or so weak to be insignificant, and ignores other factors in a persons life. Stock markets will have to revert to the mean. That includes earnings and PE ratios. Longer term, that will mean big losses for private investors sucked in by the Fed bubble. That could lead to an aversion to the stock market for years.

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