Earnings Don’t Matter… At Least Here in the U.S.

It is said, “stocks prices follow earnings.” Suny Park, Head of Institutional Client Strategy, discusses why this isn’t currently the case and what investors should consider as a result.

Key Takeaways

• It is said, “stocks prices follow earnings;” however, as many frustrated quality or growth-at-a-reasonable price portfolio managers will attest the broad US equity indices have turned this adage on its head.
• The weight of non-earners has steadily increased from about 20% in September 2016 to about 37% of the Russell 2000 Index at the end of September 2021.
• Despite generating positive absolute returns, as long as stock price momentum remains disconnected from the underlying earnings and cash flow growth, actively managed quality or growth-at-a-reasonable price portfolios may continue to underperform their respective benchmarks.

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