Global Stock Prices Fueled by Ugly Earnings, by Wolf Richter

The stock market is capitalizing faith, hope, and pixie dust. From Wolf Richter at

Hype works, until it doesn’t.

In theory, stock markets surge because earnings are rising or are expected to rise. But the astounding thing in this eight-year bull market is the combination of how far stocks have surged since 2011 and how lousy earnings have been – globally!

I’ve been pointing this out for US equities, but this is a global thing, with global implications, and of global magnitude, and on that level, it’s even grander and more astounding.

Global stocks, as measured by the MSCI AC, which tracks equity returns in 23 developed and 24 emerging markets, has soared over 11% year-to-date and is up 32% since pre-Financial-Crisis peak-year 2007. Some components within it:

  • The MSCI US, reflecting US equities, is up 11.5% year-to-date and 75% since 2007.
  • The MSCI EM for Emerging Markets surged 23% this year and is up 45% since 2007.
  • Even the MSCI EU for European equities is above its level in 2007.

This chart by Economics and Strategy, National Bank of Canada, shows the increase of the MSCI indices for the US (brown line), Emerging Markets (red line), the World (blue line) and the EU (teal line at the bottom). The left scale is set at 2007 =100. So when the MSCI US is at 175 on the left scale, it has surged 75% from 2007:

So you’d think that these surging stock prices would be based on surging corporate earnings, that companies are raking in profits hand over fist, and that financial engineering, “adjustments,” and share buybacks are making these earnings looks even fatter and grander.

And you’d think the “estimated forward earnings” would be booming. There are what analysts and corporate PR departments put out to be their hope for future “adjusted earnings,” which are then massively slashed as earnings reporting dates move closer so that “adjusted earnings” have a chance of beating the lowered estimates. These “adjusted earnings” are earnings as reported under GAAP minus a ton of bad stuff “adjusted” out of them. They contrast with GAAP earnings.

To continue reading: Global Stock Prices Fueled by Ugly Earnings


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