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Profit Motive: If Earnings/Margins Are Peaking, What About Stocks?

September 6, 2012

Investors are returning from their summer vacations and getting ready for what could be a very interesting final quarter of 2012. 

-Liz Ann Sonders, chief investment strategist, Schwab

Investors are returning from their summer vacations and getting ready for what could be a very interesting final quarter of 2012. August was fairly quiet, which was a great relief given the fireworks of the past several years. We're also in the lull period between second- and third-quarter earnings reports. Second-quarter earnings season was an interesting one in that it highlighted the effect on stocks of an expectations bar that had been lowered quite dramatically. Stocks, at least in the short term, often move more on relative-to-expectations rather than on absolute fundamentals.

Earnings growth has undoubtedly peaked from its torrid pace coming out of the Great Recession, but frankly, that was to be expected. As you can see in the chart below, both the plunge in earnings during the recession and the subsequent recovery from those depths were both unprecedented in history.


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