Have you heard the adage: profits are the mother’s milk of stocks. It’s a fancy way of saying that profits are the long-term driver of stock prices.
Today, Q1 earnings are topping a low bar. When the season concludes, earnings growth will probably be in the plus column – barely, but it will likely be the worst showing in almost three years.
Yet, it’s more about the so-called second derivative than the actual number. In other words, clearing the low hurdle has been the frosting on the low-interest rate cake, i.e., it’s the frosting that pushed the S&P 500 to a new high this week.
Yet, risks rarely dissipate. If they do – at least via investor perceptions, a rude awakening usually brings us back to reality.
Long-term investors know that volatility and corrections are a part of the process. Those with a long-term time horizon also know that timing the market is exceedingly difficult. That leads to the conclusion that a disciplined approach which incorporates setbacks has historically been the most fruitful path in achieving one’s financial goals.
