Today JPMorgen and Citigroup both reported amazing quarter earnings reports after a big sell off week this week. Investors are worrying about if the longest bull market is close to its end. Can these good earnings reports ease investors’ worry? In the short term, it might be helpful to ease investors’ worry; when thinking about the long term performance of the stock market, it does not make sense that these reports can easily ease the market worry.
Investors may expect other companies will also deliver very good earnings reports in the coming weeks or months, so they could have the confidence that the stock market will stay as strong as it has been, then the market will bounce back from this week’s fall. However, a company's share price is not based on its past performance, but based on its future performance or future payouts, as we know the share price function is the sum of all possible discounted outcomes. Therefore, even if the companies in general have wonderful history performances and dividends, once the future performances do not go well or people expect the companies will not perform well in the future, then the share prices will still fall sharply, because the future determines firms’ today values.
Overall, the good companies’ reports give investors some reasons to believe the stock market will be strong, but we have to think more about the future, as the future builds firms’ share prices.
No comments:
Post a Comment