This is very interesting... The market has the strongest steadiest gains when growth is slow or negative. "When quarterly earnings growth was less than 5% and not worse than minus 20%, the S&P 500 index (SPX) grew at an annualized average of 12.4%. This compares to an average annualized return of just 2.4% whenever earnings growth was above 20% and 6.4% when that growth rate was between 5% and 20%." Here is my theory about this... Ok, lets say that the stock market is a Casino game... Which it is pretty much. What drives supply/demand for gambling? When people are under pressure or not making as much as they would like they take risks and gamble. Many people dived into the 2009 rally all in with full margin gambling that they would get their "Obama Money." When the economy is so good earnings are going through the roof everyone is making so much money in business there is no demand for stocks and nobody pays them any attention. So the bottom line is... In a negative economic environment where there isn't enough deflation to reduce the amount of money within the system... Demand increases for stocks as people go toward gambling when the economy is slow. "Can't make any damn money contracting... Ill go gamble and buy me some damn stocks!!!" Funny theory, but what do you guys think? Full Article: "Good news: Earnings growth is slowing Commentary: A contrarian â and surprising â take on earnings By Mark Hulbert , MarketWatch Last Update: 12:01 AM ET Aug 7, 2012 CHAPEL HILL, N.C. (MarketWatch) â Worried that lower earnings growth will lead to a bear market? Youâre not alone. Almost everyone else is concerned too. But, by following the herd, you run the distinct possibility of becoming too worried: The stock market historically has performed better when earnings growth is slower than when it is faster. That at least is the conclusion reached by a study conducted by Ned Davis Research, the quantitative research firm. After analyzing year-over-year earnings growth back to 1927, the firm found that the stock market tends to underperform whenever earnings growth is particularly strong. The reason for this counterintuitive finding, according to Ed Clissold and Dan Sanborn, U.S. market strategists for Ned Davis Research and co-authors of the study: The market senses that high earnings growth is unsustainable, and is therefore discounting an imminent âslower earnings-growth environment.â Take a look at the accompanying chart. The Ned Davis analysts found that the stock market historically has performed the best during periods in which year-over-year changes in quarterly earnings were either flat or falling modestly: When quarterly earnings growth was less than 5% and not worse than minus 20%, the S&P 500 index (SPX) grew at an annualized average of 12.4%. This compares to an average annualized return of just 2.4% whenever earnings growth was above 20% and 6.4% when that growth rate was between 5% and 20%. What does this all mean for the current market? Earnings per share for the S&P 500 for the quarter weâre in right now are estimated by Standard & Poorâs to be $25.18 on an âoperating earningsâ basis, and $24.18 on an âas-reportedâ basis. Thatâs 0.4% lower and 6.8% higher, respectively, than the comparable totals for the year-ago quarter. As Clissold and Sanborn put it, these âconsensus estimates call for earnings growth to oscillate between the two middle â and most bullish â zonesâ of the accompanying chart. Another, perhaps equally counterintuitive implication of the Ned Davis study: If indeed earnings growth slows as expected, growth stocks are likely to outperform value stocks. I found this surprising, since value stocks are less overvalued than growth stocks. But Clissold and Sanborn explain: âIn a slow-growth environment, a premium is placed on companies that continue to deliver top-line and bottom-line growth. Almost by definition, those are growth stocks.â The bottom line? Once again, it pays to at least consider a contrarian perspective. Without it, youâd risk becoming far more gloomy and pessimistic than the historical data actually suggest is justified. "