It’s not magic or an accident
Given the mostly terrible news reported in 2023, add in the 2022 bear market and most investors have been in a bad mood since 2021. Here’s a quick sample:
- The war in Ukraine continues, resulting in a slow but steady destruction of that country
- The worst US bank failures since 2008
- Relentlessly rising interest rates making the average house unaffordable for the average family
- War rages in the Middle East like never before
And yet the stock market is having a very good year with the S&P 500 up over 15% and the NASDAQ up 29%.
Stock prices react in the short-term to news such as the list above, but the main driver is always the cash earned by companies. Below is a chart showing the revenues and earnings for the largest publicly traded stocks. The blue line–earnings—is the important one.
In 2022 the blue was falling—and so did stocks. But early this year the blue line hooked up and as always happens, the market started following earnings upward.
With all the talk of recession last year it was easy to become discouraged. And if you’re only following the market as a whole, the big picture has a powerful influence on your investing decisions.
But if you are focused on individual businesses and the stocks of those businesses, the big picture fades and is replaced by an intense focus on a small number of companies. That’s our approach at Dock Street and it helped our clients get through a difficult 2022 and be well positioned for a wonderful 2023.
Daniel A. Ogden