A Weakening Earnings Foundation Leaves The Market Increasingly Fragile

Image source: PixabayBelow are some of the most interesting things I came across this week. LINKEric Cinnamond writes, “In recent years, the gap between actual and adjusted earnings has been widening. In fact, without these adjustments, companies in the Russell 2000 wouldn’t be profitable in aggregate. It’s worth asking: would investment strategists still recommend rotating into small-cap stocks if their decisions were based on actual earnings?”LINKAs for the larger stock market, Research Affiliates points out, “The foundation supporting U.S. corporate profits and equity valuations has weakened, leaving the market increasingly fragile.”LINKThere are other reasons to take a cautious approach to the biggest stocks in the market. Ed Yardeni tells Bloomberg that for the first time, “they’re competing more aggressively against each other and they’ve got more competition coming out of nowhere.”LINKThis is on top of growing concerns regarding an AI bubble. “You’re kidding yourself if you think a stock-market bubble can’t form when there is widespread concern about a bubble. Take the housing bubble: Google search interest reached a peak in 2006, coincident with the highest precrisis level for home prices,” writes Mark Hulbert.LINKFinally, while some may be calling gold a bubble, others see it as being more rational. Edward Chancellor writes, “At first glance, the gold chart over the past three years looks like a classic investment bubble… [But] it’s not unreasonable to conclude that the rising gold price reflects a host of fiscal, financial and geopolitical uncertainties.”More By This Author:Is Search Activity Forecasting An Imminent Fall For ‘AI Stocks’?Are Investors Dreaming The Impossible Dream?A Frankenstein Of Financial Bubbles