Corporate Profits and S&P 500 Correlation – ValueWalk Premium
figure 2a corporate profits as a percent of GDP 1947 2012

Corporate Profits and S&P 500 Correlation

Earnings are the fundamental source of the value of common stock. Although short-term market movements are unpredictable, in the long-run the market capitalization of companies cannot grow faster than their earnings.  On an economy wide basis, furthermore, earnings cannot grow faster than GDP unless the fraction of earnings to GDP continues to rise, which makes no sense economically or politically.

The foregoing implies that to understand the recent behavior of the S&P 500 (.INX), it is useful to take a look at the behavior of . . .


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