Read it here first: Earnings vs the market


We discussed on Monday (2/9/04) how the “Sweet Spot” of earnings growth has passed, and how the easy money has now been made.

That same theme was picked up by the WSJ this weekend (See chart above). The Journal’s take (via NDR) was somewhat more bullish than mine, based on the combination of ultralow interest rates and no sign of inflation. (I lifted the earnings chart from CBSMarketWatch.)

Here’s an excerpt:

“So why is this time going to be different? One of the lurking concerns that cause investors to back away from stocks was removed from the equation last week, when Alan Greenspan assured investors (sort of) that interest rates should stay low for some time. Investors took his words to heart, bidding the Dow industrials to a new 32-month high on Wednesday despite myriad warnings lately that the market is overdue for a correction.

“Mr. Greenspan continues to council patience and he is in no hurry to raise rates with inflation below target and with payroll gains well below expectations,” says Joseph LaVorgna, senior U.S. economist at Deutsche Bank in New York.

That’s a distinct adjustment from what investors were thinking just last month, when the central bank made a subtle shift in its language regarding rates that sparked fears of sooner-rather-than-later increases, causing a sharp selloff in stocks. At that time, fed-fund futures indicated that investors were pricing in a quarter-point rate increase by June. By last week, after Mr. Greenspan spoke, that expectation had shifted to September.”

Check out the full piece.

As I mentioned, Ned Davis is more bullish than I, but that’s irrelelvant. If you are long, regardless of how bullish or bearish you may be, you must always respect the dominant trend.

And the trend is still up.

Thanks to Greenspan, Stocks May Buck a Trend
Erin Schulte
WSJ, February 14, 2004 11:39 a.m. EST,,SB107652717017327126,00.html

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