{"id":4399,"date":"2009-10-23T10:20:09","date_gmt":"2009-10-23T15:20:09","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=4399"},"modified":"2009-10-23T10:20:09","modified_gmt":"2009-10-23T15:20:09","slug":"earnings-is-that-really-whats-driving-the-djia-higher","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2009\/10\/23\/earnings-is-that-really-whats-driving-the-djia-higher\/","title":{"rendered":"Earnings: Is That REALLY What&#8217;s Driving The DJIA Higher?"},"content":{"rendered":"<p style=\"margin-top: 0px;\"><strong>By Vadim Pokhlebkin<\/strong><\/p>\n<p>It&#8217;s corporate  earnings season again, and everywhere you turn, analysts talk about the  influence of earnings on the \t\t\t\t\t  broad stock market:<\/p>\n<ul type=\"disc\">\n<li>US       Stocks Surge On Data, 3Q Earnings From JPMorgan, Intel (<em>Wall Street       Journal<\/em>)<\/li>\n<li>Stocks       Open Down on J&amp;J Earnings (<em>Washington<\/em><em> Post<\/em>)<\/li>\n<li>European       Stocks Surge; US       Earnings Lift Mood (<em>Wall Street Journal<\/em>)<\/li>\n<\/ul>\n<p>With so much emphasis on earnings,  this may come as a shock: <strong>The idea of earnings driving the broad stock  market is a myth<\/strong>.<\/p>\n<p>When making a statement like that, you&#8217;d better have proof. Robert Prechter, EWI&#8217;s founder and CEO, presented some of it in his 1999 <em>Wave Principle of Human Social Behavior<\/em> (excerpt; italics added):<\/p>\n<blockquote><p>Are stocks driven by corporate earnings? In June 1991, The Wall Street Journal reported on a study by Goldman Sachs\u2019s Barrie Wigmore, who found that \u201c<em>only 35%<\/em> of stock price growth [in the 1980s] can be attributed to earnings and interest rates.\u201d Wigmore concludes that all the rest is due simply to changing social attitudes toward holding stocks. Says the Journal, \u201c[This] may have just blown a hole through this most cherished of Wall Street convictions.\u201d<\/p>\n<p>What about simply the trend of earnings vs. the stock market?  Well, <em>since 1932, corporate profits have been down in 19 years. The Dow  rose in 14 of those years<\/em>. In 1973-74, the Dow fell 46% while earnings  rose 47%. <em>12-month earnings peaked at the bear market low<\/em>. Earnings do  not drive stocks.<\/p><\/blockquote>\n<p>And in 2004,  EWI&#8217;s monthly <em>Elliott Wave Financial Forecast<\/em> added this chart and  comment:<\/p>\n<p align=\"center\"><img decoding=\"async\" src=\"http:\/\/www.elliottwave.com\/images\/charts\/market-top.gif\" border=\"0\" alt=\"\" \/><\/p>\n<blockquote><p>Earnings don\u2019t drive stock prices. We\u2019ve said it a thousand times and showed the history that proves the point time and again. But that\u2019s not to say earnings don\u2019t matter. When earnings give investors a rising sense of confidence, they can be a powerful backdrop for a <em>downturn<\/em> in stock  prices. This was certainly true in 2000, as the chart shows. <em>Peak earnings  coincided with the stock market\u2019s all-time high<\/em> and stayed strong right  through the third quarter before finally succumbing to the bear market in stock  prices. <em>Investors who bought stocks based on strong earnings (and the trend  of higher earnings) got killed<\/em>.<\/p><\/blockquote>\n<p>So if earnings don&#8217;t drive the stock market&#8217;s broad trend, what does? The Elliott Wave Principle says that what shapes stock market trends is how investors collectively <em>feel<\/em> about the future. Investors&#8217; mood &#8212; or social mood &#8212; changes before &#8220;the fundamentals&#8221; reflect that change, which is why trying to predict the markets by following the earnings reports and other &#8220;fundamentals&#8221; will often leave you puzzled. The chart above makes that clear.<\/p>\n<p>Get Your FREE 8-Lesson &#8220;Conquer the Crash Collection&#8221; Now! You&#8217;ll get valuable lessons on what to do with your pension plan, what to do if you run a business, how to handle calling in loans and paying off debt and so much more. <strong><a href=\"http:\/\/www.elliottwave.com\/r.asp?acn=9cp&amp;rcn=aa50c&amp;dy=aa102209c&amp;url=\/club\/protect-yourself.aspx?code=27742\">Learn  more and get your free 8 lessons here<\/a><\/strong>.<\/p>\n<hr size=\"1\" \/><em>Robert Prechter, Chartered Market Technician, is the world\u2019s foremost expert on and proponent of the deflationary \t\t\t\t\t    scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the \t\t\t\t\t    Crash and <strong><a href=\"http:\/\/www.elliottwave.com\/r.asp?acn=9cp&amp;rcn=aa50c&amp;dy=aa102209c&amp;url=\/books\/ewp\/default.aspx?code=aff\">Elliott \t\t\t\t\t    Wave Principle<\/a><\/strong> and editor of <strong><a href=\"http:\/\/www.elliottwave.com\/r.asp?acn=9cp&amp;rcn=aa50c&amp;dy=aa102209c&amp;url=\/products\/ffs\/default.aspx?code=aff\">The \t\t\t\t      Elliott Wave Theorist<\/a><\/strong> monthly market letter since 1979.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>By Vadim Pokhlebkin &#8211; It&#8217;s corporate earnings season again, and everywhere you turn, analysts talk about the influence&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-4399","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/4399","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=4399"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/4399\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=4399"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=4399"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=4399"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}