Jan

4

 Reprising the analysis on page 47 of Practical Speculation with 17 years of new data, I compared earnings increases for the S&P 500 with the following year's net changes in the S&P 500.

Since full year earnings are not known until sometime in February, I used the 12-month earnings ending in September as the independent variable for a regression, with the dependent variable being the following year's net change in the S&P 500.

I found a negative correlation, but not significant as the t value was -0.7 and p was 0.49. Scatter graph is attached.

An outlier in the data was the fourth quarter of 2008 (counted as part of the 12 months ending September 30, 2009 in my analysis), in which massive bank writeoffs resulted in negative earnings for the quarter.

                             net earnings year-end        next year
Year      12-month earnings   change      S&P 500    S&P 500 change
   2001              28.31                 1148.08           
   2002              30.04    0.06          879.82             0.26
   2003              38.58    0.28         1111.92             0.09
   2004              57.77    0.50         1211.92             0.03
   2005              66.57    0.15         1248.29             0.14
   2006              78.57    0.18         1418.30             0.04
   2007              78.60    0.00         1468.36            -0.38
   2008              45.95    0.42          903.25             0.23
   2009              12.54   -0.73         1115.10             0.13
   2010              71.86    4.73         1257.64             0.00
   2011              86.98    0.21         1257.60             0.13
   2012               86.5   -0.01         1426.19             0.30
   2013              94.37    0.09         1848.36             0.11
   2014             105.96    0.12         2058.90            -0.01
   2015              90.66   -0.14         2043.94             0.10
   2016              89.09   -0.02         2238.83             0.19
   2017             107.08    0.20         2673.61            -0.06
   2018             130.39    0.22         2506.85             0.29
   2019             133.24    0.02         3240.02 (Dec. 27)


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