Playing on Profits Cycle?

9 Pages Posted: 21 Nov 2003

Date Written: October 24, 2003


In the article it is shown that year-to-year change of the S&P 500 does not depend on profits cycle. On the other hand, year-to-year change of earnings multiple P/E tends to anticorrelate with profits cycle. It shows sluggishness of market response in relation to profits cycle. It is shown that there is one important condition for development of new long-term bull trend. It is presence of phase of earnings accumulation. Such accumulation is possible only during periods of significant outstripping of earnings growth over the market growth. Now there is no phase of earnings accumulation, because market returned to 8% long-term growth rate, which outstrips the 5.5% long-term earnings growth rate. Such conditions can support only sideways market at best.

Keywords: Profits cycle, earnings, growth rate, P/E ratio, earnings accumulation, Fed's model, CRB Spot Index, 10-Y Treasury bond yield

JEL Classification: C00, C12, C13, C22, C50, G00, G12

Suggested Citation

Baryshevsky, Dmitry V., Playing on Profits Cycle? (October 24, 2003). Available at SSRN: or

Dmitry V. Baryshevsky (Contact Author)

Financial Analysis Group ( email )

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