It’s Not the Economy, Stupid
James Carvel is credited with what became the Bill Clinton election campaign’s default motto “It’s the Economy, Stupid” as he went on to defeat George Bush. While his statement was true when it came to the election, it is not true for what drives the stock market cycle. At least for the last 20 years or so. I’ll admit I track a few key leading economic indicators and estimates of future earnings to gauge market reactions and expectations. But I also know the stock market itself is a leading indicator for the economy and much of the evidence for what the market does comes in well after the fact. It is the over-emphasis of every “seasonally adjusted” and “soon to be revised” indication of the economy that tends to take away investor focus from the real driver of the earnings cycle. Corporate revenue tends to track closely with the economy, but earnings have been on a wild roller coaster ride the last 20 years. And the stock market has followed the earnings cycle and then some as PE multiples expand as the bull market ages. A simple graph courtesy of the Federal Reserve Bank of St. Louis to make my point…
At the TSP & Vanguard Smart Investor we follow on the driver of the earnings cycle, not the just the economy. We also let history be our guide, not the financial media. Invest Smart.
Categories: The Smart Bird