I Was Thinking: Current Earnings?
I don’t obsess over fundamentals, but I’m wondering this one thing….
The market typically trades on some multiple of earnings, most fundamental market analysts agree. And let’s say that this multiple expands or contracts based upon some level of pessimism / optimism about future earnings prospects, right? For example, if earnings are good and expected to get better, we might trade at 15 times earnings and if earnings are bad and expected to get worse, we might trade at 7 times earnings.
I can’t figure out what just happened because I heard on the news that earnings for the S&P 500 were down 85%.
So, I was thinking… “Shouldn’t the market be down by some amount around 85%, give or take?” If, according to the mainstream media things are as bad as they’ve been since the Great Depression, why is it that the stock market has only gone down half as much as it did during the Great Depression?
I’m guessing that it could be one of a few things: Either the economy’s not in as bad shape as the media make it out to be, or that market players are expecting VERY strong earnings going forward, or we are only half way to our ultimate destination.
I don’t know which it is. Thankfully, our strategy is constructed in such a manner that we don’t have to know which it is… We only need go with the flow and ride the waves the markets give us.
