The economy, profits, and stock prices - an important relationship


The above chart shows the graphs of the change of profits (blue line) and the change of the Wilshire 5000 (red line). (Click on the chart to enlarge it.)
The importance of knowing what is going to happen to the economy is crucial to shape investors' strategy.
If one believes the economy is going to grow strongly from the current slow pace, then the stock market is likely to remain strong.
If, on the other hand, the economy grows at a slow pace, then investors should consider carefully the message of the above chart.
The growth in equities will likely match the growth of profits (up 2.9% y/y in Q4) as it happened in 1998, 2000, 2008, and 2012.
George Dagnino, PhD
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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