It is said, “stocks prices follow earnings.” Suny Park, Head of Institutional Client Strategy, discusses why this isn’t currently the case and what investors should consider as a result.

Key takeaways

• It is said, “stocks prices follow earnings;” however, as many frustrated quality or growth-at-a-reasonable price portfolio managers will attest the broad US equity indices have turned this adage on its head.
• The weight of non-earners has steadily increased from about 20% in September 2016 to about 37% of the Russell 2000 Index at the end of September 2021.
• Despite generating positive absolute returns, as long as stock price momentum remains disconnected from the underlying earnings and cash flow growth, actively managed quality or growth-at-a-reasonable price portfolios may continue to underperform their respective benchmarks.

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