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How Long Can The New Bull Market Last After Earnings Growth Rates Peak?

NAPLES, Fla. - Sept. 20 (SEND2PRESS NEWSWIRE) -- Halvorson Research Associates LLC (HRA), an investment research company based in Naples, Fla., is studying what happens to stock prices after earnings growth rate peaks occur.

"After close examination," William A. Halvorson, president, said, "we discovered that prices of stocks, in general, do not automatically decline as overall earnings growth rates decrease. This is due to the fact that investors typically anticipate events and look beyond the present to future periods of earnings growth."

In May of 2005, earnings growth rates reached their highest level since the previous peak in October 2000. In Halvorson's study of 800 companies, the annual earnings growth rate reached 12.7 percent per year as compared to 8.8 percent in 2000. Other recent peaks showed 10.9 percent earnings growth rate per year in May of 1995, and 11.8 percent in January 1989.

"Negative movement in prices occurred after only one of these growth peaks," Halvorson explained. "This indicates that something else might account for the rapid decrease in prices after the October 2000 peak. The most likely factor affecting the prices investors are willing to pay for stocks is 'market sentiment.' "

HRA has developed a measurement of market sentiment - the GOPF Index of Market Sentiment - that divides sentiment readings into: Greed, Optimism, Pessimism, and Fear.

The GOPF Index was created in November of 1987 following the meltdown in prices that occurred on October 19, 1987 (-23 percent in one day) in an attempt to have some way of avoiding "investment timing" mistakes.

The GOPF Index plots actual stock prices against their theoretical values to determine which statistical range the stock market is currently in.

When stock prices exceed HRA's theoretical market prices by more than one standard deviation, HRA refers to it as: "Greed" territory. If the excess is less than one standard deviation, market sentiment is "Optimistic." When prices are within one standard deviation below expected market prices, sentiment is identified as "Pessimistic," and if more than one standard deviation below theoretical market prices - "FEAR" takes over as the predominant sentiment.

To view the entire report including the calculations of market sentiment and earnings growth rates between 1989 and now, please visit HRA's website at: www.HRAstockpicks.com or call 1-866-639-0061.

Copyright © 2006 Send2Press® Newswire
Send2Press Newswire, Halvorson Research Associates, William Halvorson.