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ARE STOCKS OR PROFITS WRONG?

13 September 2008 by Cullen Roche 0 Comments

Although corporate profits have fallen off a cliff in recent quarters, the market has remained rather bullish.  The red line is a measure of non-financial profits.  Profits are the mothers milk of future stock prices.  Profits always lead stock performance.  The stock market is either pricing in a sharp recovery in corporate profits or the market is underestimating the future weakness of profits.  Based on the slowing global growth and the stagnant US economy I would venture to guess that the market currently has this one dead wrong and is likely to see lower levels in the coming months.

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