Unlocking the Secrets of Earnings: A Journey Through Time

In the bustling halls of the University of Calgary, a young student once sat in a classroom, captivated by the words of an economics professor. It was a moment that would later resonate deeply, as the concept of short and long-term economic impacts unfolded before him. “In the long run, we are all dead,” the professor echoed, quoting the legendary John Maynard Keynes. These words, layered with meaning, became a beacon of understanding in the complex world of economics.

The Evolution of Stock Market Performance

Fast forward to today, where the lessons from that classroom continue to unfold in the dynamic world of stock markets. The S&P 500 and S&P TSX stand as towering symbols of financial prowess, each reflecting the varied fortunes of the individual stocks they encompass. Yet, amid the swirling tides of market fluctuations, one truth remains steadfast: long-term market performance is intrinsically tied to the direction of earnings.

A Cautionary Tale of Market Volatility

Consider the market sell-off witnessed in April due to unexpected tariff announcements by the Trump Administration. While the initial reaction was a wave of uncertainty, the core of the market quickly rebounded. According to Medicine Hat News, this resilience can be attributed to the unwavering trajectory of earnings growth—a testament to the long-term perspective that investors must embrace.

Delving into the past, a chart reveals the combined earnings growth of S&P 500 companies since 1995. Marked by recessions in 2001, 2008, and 2020, the trajectory of earnings tells a story rich in economic history. Within this narrative lies a proprietary econometric model—depicted by a red-dotted line—that stands as a robust predictor of earnings growth. Driven by signals such as interest rates, the value of the U.S. Dollar, and global GDP growth, this model boldly points to further growth in the coming year.

The Role of Artificial Intelligence

In an age of technological marvels, artificial intelligence emerges as a formidable catalyst for earnings growth. By enhancing productivity across industries, AI fosters a landscape ripe for market gains. It underscores the notion that headlines and current events, while significant, often serve as buying opportunities when underpinned by positive earnings growth.

Embracing the Perspective of Growth

Reflecting on these valuable insights, the importance of keeping an eye on earnings growth becomes apparent. For those with a keen eye on the market, headline-induced corrections represent strategic opportunities. The lesson is clear: as long as earnings continue on an upward trajectory, the potential for further market gains remains bright.

A Journey Etched in Memory

Twenty-five years have passed since that pivotal lecture in Calgary, yet the essence of the lesson endures. Eric Van Enk, now a seasoned wealth adviser and portfolio manager, credits his journey through New York, Toronto, and Calgary to the foundational principles imparted during those formative years. His story is a testament to the enduring power of understanding economics and the pivotal role of earnings in shaping the financial landscape.