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S&P 500 companies just had their most profitable quarter ever.
In the second quarter, companies reported profits of $30.60 per share. That’s a 4.5% increase from the previous quarter. And a 16% increase from the same quarter last year.
This is just another reason why I’m bullish on the market. Recently, I’ve shown you…
- Why the bull market is on track for more gains.
- Why this indicator is saying to keep buying stocks.
- And how you can continue to ride this bullish trend.
Just last week, an article came across my desk saying the Dow Jones Industrial Average has set 34 record highs so far this year.
That’s why I don’t fight the trend.
However, many market pundits want to go against the grain.
Wall Street is full of doom and gloom these days. It’s saying the bull market has gone on too long and stocks are too expensive. But you should ignore them.
If you listened to the doomsayers and sold your stocks, you could have missed up to 70% gains.
And with companies’ profits at all-time highs, you can continue ignoring calls to sell your stocks. Because when companies are earning more, share prices usually go up, too.
Just look at the chart below…
As you can see, there is a direct correlation between earnings per share and the price of the market.
It’s not perfect; profits were still rising as the tech boom burst in early 2000. But it kept you in the market during the big run-up in the ’90s.
However, if you exited on a downtick in S&P 500 companies’ profits, you’d have avoided most of the last three market drawdowns.
Profits also trend for long periods of time. The last three profit expansions lasted a little over six years on average. The current expansion is less than a year old.
If history repeats itself, we should see five more years of profit expansion.
I’ve been saying this a lot lately—the market is still healthy. And so are businesses.
These companies are selling more than ever. And they’re passing along more profits than ever to investors.
It’s a bull market. Continue owning stocks.
Nick Rokke, CFA
Analyst, The Palm Beach Daily