To the Thread,
On Wall Street, the mantra is that earnings drive stock prices. As one example, Zacks is fond of saying that earnings are the single most important factor in determining the price of a stock.
I think the above is perhaps true over the "long haul", but I have come to the conclusion that earnings estimates are a very lagging indicator over the "short term". The evidence is in the last post of earnings estimates versus time.
It has been posted several times that the group price low occurred on 11/30/00 at 567.14. At the week closing 7/27/00, the group price was 1269.98. Therefore, over that period, the group price dropped 55 percent.
Over that same period above, this years earnings estimate went from 43.60 to 47.01, an increase of 7.8 percent while next years earnings went from 63.89 to 57.72, a decrease of 9.7 percent.
Clearly, the group price was dropping like a rock, while the earnings estimates moved very little.
Now let's look at the period from 11/30/00 to todays closing prices and earnings estimates.
Today, the group price closed at 868.69. From the 11/30/00 close of 567.14, that is a gain of 53 percent. During the same period, this years earnings estimate went from 47.01 to 14.86, a decrease of 68 percent, while next years earnings estimate went from 57.72 to 24.36, a decrease of 58 percent. Keep in mind, this period is over 5 1/2 months in duration. The group price is going up while the earnings estimates from the analysts are still going down(in accelerating fashion I might add).
In summary, over a period of nearly a year of record keeping, the correlation index between earnings estimates and stock prices has been closer to -1 than +1. |
