Remember the Sesame Street ditty “One of these things is not like the others”. This little song was designed to help children determine differences in unique outliers patterns or groups. Being in my late 50’s, I grew up with the Sesame Street gang and its lessons during my childhood in the late 1960’s and early 1970’s. Little did I know that they were training me for a career in Technical Analysis of stock trends! Thanks, Jim Henson and gang! Today, we’re going to play the game of “One of these things” to see if us adults can spot something that doesn’t fit in with the others. So – come and play along!
They say a picture is worth a thousand words. So, I should be able to keep this blog’s verbiage pretty short after we look at the picture below. The chart illustrates the S&P 500 going back to 1980, with the S&P 500’s earnings in the pane below. To help Cookie Monster (picture above) figure out which time period differs from the others, I have added some bright red arrows. So, kids, can you spot the anomaly (can you say “an-om-a-ly”?) where earnings went down, but the stock market STILL went up? First boy or girl who gets this right gets a gold star on their paper!
The closeup view on the chart above (right side pane) shows us the view going back to early 2020. Yes, little Sally and Johnny–that’s when “The Virus” appeared in Wuhan China. And that’s when earnings fell, along with the stock market, as people everywhere hunkered down and businesses were forced to close. That made sense.
But wait… then something strange happened. For the first time in 40 + years – earnings remained low yet stock markets rose – strongly. Normally, the two move somewhat in tandem….
One of these things is not like the others…indeed.
BTW–I recorded a video at my cottage on the weekend (why not?) that attempts to answer the question of “How low can it go” regarding the recent bout of market volatility. That video should be posted by the end of the day on Monday June 21. Check the video webpage here to view the video when its posted.