This past weekend, I discussed how the current rally since the election has been based on ‘hopes’ for tax cuts and tax reforms as there was little evidence currently to suggest it was based on fundamental underpinnings. To wit:
‘Do not be mistaken, this ‘rally’ IS all about tax cuts. Despite many who are suggesting this has been a ‘rational rise’ due to strong earnings growth, that is simply not the case as shown below. (I only use ‘reported earnings’ which includes all the ‘bad stuff.’ Any analysis using ‘operating earnings’ is misleading.)’
‘Since 2014, the stock market has risen (capital appreciation only) by 35% while reported earnings growth has risen by a whopping 2%. A 2% growth in earnings over the last 3-years hardly justifies a 33% premium over earnings.’
The chart below expands that analysis to include four measures combined: Economic growth, Top-line Sales Growth, Reported Earnings, and Corporate Profits After Tax. While quarterly data is not yet available for the 3rd quarter, officially, what is shown is the market has grown substantially faster than all other measures. Since 2014, the economy has only grown by a little less than 9%, top-line revenues by just 3% along with corporate profits after tax, and reported earnings by just 2%. All of that while asset prices have grown by 29% through Q2.
This post was published at Zero Hedge on Oct 24, 2017.