I got the famous question at the gym this morning… “What do you think the stock market is going to do?”
Calendar year 2013 has been a great year for the S&P 500 up over 25%, but underlying earnings growth is clipping up only 6%. This is a trend that if perpetuated could cause distortions. The following tweet is a more accurate depiction of markets… our main job is to keep people from changing behavior and keeping their focus far into the future. What worries me is that individuals usually forget the reality in the picture below.
To sum things up, this is our stab at answering the question posed at the gym:
- Earnings must start accelerating faster than future stock appreciation
My best analogy is that the stock market is like a marathon runner… maybe starts strong… then get fatigued… pick up your pace again…. you get the drift, but if you want to finish the race you have to stay in the game.