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From the NY Times, Feb. 6th:

The faster corporate earnings grow, the better the stock market performs. That is a tenet of Wall Street, but like so much other conventional wisdom, it turns out to be false.

In fact, since 1927, according to data from Ned Davis Research of Atlanta, the market has performed best during quarters when earnings are as much as 25 percent below year-earlier levels. When earnings are growing strongly, as many expect them to do this year, the market has tended to have below-average performance.

Of course, these findings for the overall market run counter to the experience of specific companies. For many of them, the relationship of earnings growth and stock price is often positive - especially when a company exceeds profit expectations.

But according to a recent study, it makes sound economic sense that what sometimes prevails for one company does not apply to the overall market. The study, "Stock Returns, Aggregate Earnings Surprises, and Behavioral Finance," by S. P. Kothari, an accounting professor at the Massachusetts Institute of Technology; Jonathan W. Lewellen, an M.I.T. finance professor; and Jerold B. Warner, a finance professor at the University of Rochester, has been circulating as an academic paper since last year.

The article further states:

An implication of the professors' study is that the market's performance is likely to be below average this year, because of the consensus expectation for double-digit profit growth accompanied by rising interest rates.

The pattern discerned by the professors could create buying opportunities down the road. That is because investors tend to drive market valuations way down when interest rates rise over a sustained period. A diversified stock portfolio bought at a time of depressed valuations can be expected to appreciate when interest rates fall. But if the pattern holds this time, it's way too early for the market to start going much higher.

...just some more info regarding the guessing game of playing the legalized gambling system in the U.S. called the Stock Market...

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