The Real Reason Stocks Go Up - Wyatt Investment Research

It’s easy to get distracted…

And forget the single most important thing for stocks.

It’s earnings.

Yes, that sounds boring. But it’s 100% true.

It’s easy to get distracted by the Fed, interest rates, global conflicts, inflation, etc.

However, stock market gains over the long-term are powered by earnings growth.

Here you can see that earnings (black line) and the price of the S&P 500 (blue line) basically move together.

When earnings fall – stock prices fall.

And when earnings rise – stock prices rise.

It’s that simple.

Now, the U.S. stock market has experienced a huge rally since October.

There’s lots of reasons to justify the gains…

Falling inflation… a resilient economy… and the expectation of lower interest rates.

Yet I’d argue…

Earnings growth is the real reason stocks continue to rise.

4^th quarter earnings for the S&P 500 grew 3.2%.

The outlook is also bright…

If the S&P 500 continues to deliver double-digit earnings growth…

The index will continue rising.

I’m expecting that profit margins will continue expanding…

Thanks to productivity gains from Artificial Intelligence, robotics and automation.

Ian

P.S. When the S&P is positive in the months of January and February…

The average 12-month gains are nearly 15%