We pulled this chart from a strategy piece by Citi's Tobias Levkovich. It's a nice reminder that earnings ultimately decide the direction for stocks in the long-term. Note how the stock market has fallen lately despite rising earnings:
While there's been substantial earnings volatility recently, mostly due to financial companies, the key question long-term investors should be asking themselves is this -- Will S&P 500 earnings be higher or lower in ten years?
If your answer is yes, then the stock market is cheap. If your answer is no, then it's not.
There are thousands of positive and negative arguments out there, but investors should always appraise them within the framework of long-term earnings. Ultimately, any bullish or bearish argument must commit itself to a forecast of higher (bulls) or lower (bears) earnings in ten years.
(Chart via Citi, Monday Morning Musings, Tobias Levkovich, 11 June 2010)
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Full story at http://feedproxy.google.com/~r/businessinsider/~3/HpcdUH0TZaY/sp500-earnings-2010-6
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