Some investors have questioned the rise of the stock markets of late. The fact is, the markets have been moving in lock step with stimulus actions the Fed has taken, which have also been tied to the state of the European economy.
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Now, that lock step is breaking. For the first time in the three and a half years since the 2008 crisis, markets and individual stocks are moving up on earnings and other company data.
With the herd mentality fading, investors are turning their attention toward corporations whose earnings are expected to increase 10% per year through 2014. It’s becoming a stock picker’s market.
With European Central Bank president Mario Draghi’s promises to ease monetary policy in Europe, companies whose earnings are growing regardless of the condition of the world economy are much more meaningful to investors.
Markets are moving more on earnings reports than on news from Europe. The only rise in the S&P 500 during August that was greater than 1% occurred after ten companies reported earnings. Reporting companies’ stock values rose or fell more than 20% the day after the earnings reports.
There are also easy comparisons year-over-year in this environment, a factor that could continue to fuel investor expectations. If the US economy continues to improve and more analysts come out with positive earnings expectations, the markets could continue to rise.
That should, in turn, fuel better economic reports. Better earnings
mean more jobs and more jobs mean more money for consumers to spend. Consumer spending is responsible for 70% of growth in gross domestic product.