Stop Paying So Much Attention to Corporate Profits – They Really Aren't That Good of an Indicator

If you're an observer or participant of financial markets for very long, you will find that you can't ignore a discussion about corporate profits and how important they are for predicting equity market returns.

The thinking is simple - If corporations ain't making a profit, you aren't making a profit.

Is that really true?

Here's a look at corporate profits from 1960 through Q2 2015 and their connection (or lack thereof) with the return in the S&P 500.

Corporate Profits, 1960 to Q2 2015

[drizzle]

Here's at look at the entire series.

It's difficult to inspect the potential connection with the number of years.  The following sections break down the series.

Overall, just based on a visual inspection, one might come to the conclusion...