When we buy a share of stock, what we're really buying is a share of future profits. The higher those profits, the more we should be willing to pay for a share of those earnings. The chart below shows corporate profits, which are at all-time highs. Since each share of stock represents a share of those profits, it shouldn't be all that surprising that the averages sit near all-time highs as well.
I'll admit that many dynamics that are in play in the economy appear less than satisfactory, but remember that the stock market and the economy are only correlated in the long run. Stock prices show the strongest correlation with corporate earnings, period.
But what about the discounting mechanism of the market? It's absolutely still in play. And what the stock market is telling us is that corporate profits are going higher. If we begin to see indications that this is ... Log in or subscribe to continue reading.
Premium Content Notification
A subscription is necessary to access premium content.
Please use the button below to subscribe in order to access all premium articles