I guess it really is a paradox: If the fundamentals are measured/rated as OK, FAIR, GOOD, or GREAT then sentiment has already been established in the decision/rating. Whether money will follow depends on overwhelming sentiment change. Great Fundamentals must be followed by greater fundamentals....if not sentiment wanes.....money leaves. AAPL had great fundamentals before Feb 27 and their target price was raise to $120.....in the blink of an eye the price was $84'ish. What happened? Sentiment did not agree and money left. Now they are pushing $120 and quickly....what happened? did fundamentals change? no!. Sentiment changed.....investors now believe it is worth $120 and more. Revenue alone will not keep sentiment high. Generating ever increasing quarters of revenue will pacify and keep sentiment in check. ARG = the highest sentiment. Fundamentals reflect the ability to grow revenue........Sentiment says "Yes , I believe it" and "that is good enough for me" or " No, I don't believe it" "I'll come back when you have better fundamentals." Well, most people fall somewhere in between and that is why you can track it with technicals.
For anyone who's interested here's some reading. I found and bookmarked these doing some homework on interest rates & market correlation, just thought I'd share: "Market Timing Does Work - Evidence from the NYSE" http://www2.warwick.ac.uk/fac/soc/wbs/research/wfri/wpaperseries/wf05-236.pdf "Market-Timing Strategies That Worked" http://www.kc.frb.org/Publicat/Reswkpap/pdf/rwp02-01.pdf "The PE Ratio and Stock Market Performance" http://www.kc.frb.org/publicat/econrev/PDF/4q00shen.pdf (Check out chart 4 on Page 28, it shows the interest rates vs. PE spread over 30 years. Ironically this paper was published in 2000 and the author made a case why "this time could be different" )
"How Much Do Interest Rates Affect the Fair Value of Stocks?" http://www.hussman.net/wmc/wmc070521.htm
I think you mean to say "profits", not "revenue". Just think of a company that had 1 billion in revenue, but it cost them 2 billion to generate it. You probably don't want to be invested in their stock.
Hey Makloda, That was a pretty good reading list you provided. Those academic papers required a lot of indigestion (pedantic nirvana), however, they had some interesting pts. I'm surprised to see you posted Hussman's argument, since this is a very bearish argument against the FED valuation cheerleading models we hear ad nauseum. But I think his argument reflects what I've been thinking; if interest rates continue to rise --ESPECIALLY-- if FED somehow decides to raise FUND rates, that would definitely be not good, regardless of the earnings to Tbill yield differential. Although, most likely they will sit pat until if and when the markets do sincerely pull back, at which time they'll pump markets with cuts (which is usually too late). Anyways, good to see you reading (and sharing) both sides of the arguments.
"I think you mean to say "profits", not "revenue". Just think of a company that had 1 billion in revenue, but it cost them 2 billion to generate it. You probably don't want to be invested in their stock." Unless their name is amazon of course
Reveue has always mattered (along with profits) but not 3 rd degree extemist bollinger bangs and 5 day mean averagers and divergence patterns and other stuff you use.
This. Both the thanks for posting the articles and the opinion on Hussman's writeup. Looking at the yields and valuation synopsis I'm wondering how the market will react if earnings begin to slide from rising inflation/housing recession/whatever and push us into high P/E territory. Especailly if the boogeyman turns out to be inflation - it'd be interesting to see how much the market hesitates on buying stocks with P/Es over 20 and the potential of an increase in rates.