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Ghost of Igloi
RE: Down goes the Dow

Today, one can believe that corporate earnings are less relevant to stock prices than they were in the past. If so, one should expect that the regular occurrence of 50% drops in the stock market can. That has happened twice in the same period you quoted. How can one accept one concept without the other?

One only has to look to recent stock blow-ups, the latest two being SCTY and LC, to see that fundamentals punish with a vengeance. The broader market displayed similar bouts of volatility in August/September and January/February. Once stock prices become representative of fantasy rather than reality such occurrences happen more frequently.

As to what makes me think now is a more critical in term of timing, well earnings and stock market action. As I wrote in an earlier post today the S&P 500 is at the same level it was at in November 2014. Incidentally, that time period matches-up with the cycle peak in earnings Q3 2014. International markets have performed poorly for most of the same period. The ten year Treasury has hugged the 1.7%-2.2% line as well.

Of course one can believe that forward operating earnings will explode by 22% over the next year.


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