To Harry’s point – the stock market correlates with earnings – I’ve found a great chart to share with you today.
It shows a long-term perspective on earnings-per-share (EPS, in blue) and corporate profits per share (in red). Both tend to track with the S&P 500 (shaded background) quite well.
When I first glanced at this chart, one thing jumped out at me: the volatility!
Now, volatility is a word that gets thrown around regularly, often with varying definitions. So let me explain…
I’m referring to the deviation from the trend. Look at the dotted red line, showing the long-term average trend. Then, look at the solid red line, which shows corporate profits for each year.
The space between these two lines is the deviation, either above or below the trend.
As you can see, since the late 1990s, deviation from the trend has been extreme on both sides. And that goes a long way toward explaining the sharp up-and-down nature of the S&P 500 since 2000.
Bringing it back to Calvin’s question at the beginning of today’s issue, is it likely nearly-retired folks will put their hard-earned dollars into this market?
I agree with Harry on this one, Calvin. I doubt it.
Seems to me more Baby Boomers will make the rational choice of adjusting their lifestyle to fit within their budget, rather than chasing volatile returns in the market.
Time will tell. But we really shouldn’t bank on increased participation from this demographic to see higher stock prices.