Are Rising Earnings Bullish? And Falling Earnings Bearish? from Steve Ellison
Reprising the analysis on page 47 of Practical Speculation with 17 years of new data, I compared earnings increases for the S&P 500 with the following year's net changes in the S&P 500.
Since full year earnings are not known until sometime in February, I used the 12-month earnings ending in September as the independent variable for a regression, with the dependent variable being the following year's net change in the S&P 500.
I found a negative correlation, but not significant as the t value was -0.7 and p was 0.49. Scatter graph is attached.
An outlier in the data was the fourth quarter of 2008 (counted as part of the 12 months ending September 30, 2009 in my analysis), in which massive bank writeoffs resulted in negative earnings for the quarter.
net earnings year-end next year
Year 12-month earnings change S&P 500 S&P 500 change
2001 28.31 1148.08
2002 30.04 0.06 879.82 0.26
2003 38.58 0.28 1111.92 0.09
2004 57.77 0.50 1211.92 0.03
2005 66.57 0.15 1248.29 0.14
2006 78.57 0.18 1418.30 0.04
2007 78.60 0.00 1468.36 -0.38
2008 45.95 0.42 903.25 0.23
2009 12.54 -0.73 1115.10 0.13
2010 71.86 4.73 1257.64 0.00
2011 86.98 0.21 1257.60 0.13
2012 86.5 -0.01 1426.19 0.30
2013 94.37 0.09 1848.36 0.11
2014 105.96 0.12 2058.90 -0.01
2015 90.66 -0.14 2043.94 0.10
2016 89.09 -0.02 2238.83 0.19
2017 107.08 0.20 2673.61 -0.06
2018 130.39 0.22 2506.85 0.29
2019 133.24 0.02 3240.02 (Dec. 27)