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I don't think stock price is a leading indicator. It goes something like Profits -> hiring decisions -> stock prices Stock price could be many months behind t

I don't think stock price is a leading indicator. It goes something like Profits -> hiring decisions -> stock prices Stock price could be many months behind the profits as you don't do dialy earning reports.

edoceo 10y ago
Forward P/E
nostrademons 10y ago
Stock price does tend to be a leading indicator, because the major Wall Street analysts all do their best to independently derive a company's sales so they can front-run the stock before official earnings come out. Causality tends to run: Product announcements -> sales -> stock price -> reported profits -> hiring decisions (-> regional migration -> housing prices). A number of my college classmates went into equity analysis or management consulting positions, they would do things like canvas retail locations and count the number of shoppers walking out with the products of interest, or track search engine rankings, or sit on Google Trends to watch for changes in search volumes in the markets of interest. This is also why stock prices fall when a company "misses estimates", even if earnings are themselves up. Wall Street has a consensus estimate for how they expect the stock to do, and that estimate is priced into the stock. When the analysts are wrong (which isn't uncommon), the stock corrects based on the difference between the estimate and the reported earnings.
- brianwawok 10y ago
  The things you say are true, but your conclusion is not quite right. Stock price attempts to predict earnings. It is never perfect or earning announcements would never move the stock. The fact is, if you want to know at a 1 or 2 month with window how a company is doing, stock is not the place to look
  - nostrademons 10y ago
    Sure, it's never perfect, but in context here it's relevant. Grandparent's point is that there is no evidence of a broad-based downturn in Silicon Valley, based on stock prices of major tech companies. Yours is that stock prices tend to be lagging indicators. I don't believe this is true in the general case (certainly it can be in specific ones), but if you believe that it is - how big is your short? If you believe that stock prices are lagging indicators and market consensus doesn't reflect reality, this is your chance to make money off that belief.
    - tehlike 10y ago
      With this logic, most of the bursts wouldnt happen, would they? In 2000 with the dotcom, why was it a bust and not a gradual decline? Same goes for 2007/8 bust. If it were not lagging, wouldnt you expect people would have realized this and bring market to its stable levels with similar shorting?
    - tehlike 10y ago
      Also there are various indices that try to predict market overvaluation, that seem to give red alert on cirrent valuations. The problem is, can you exactly time when it is supposed to bust? Not likely. Markets can stay irrational longer than you can stay solvent.
foxhedgehog 10y ago
Stock price also doesn't correlate with hiring if there's increased automation driving it.

edoceo 10y ago

Forward P/E

nostrademons 10y ago

Stock price does tend to be a leading indicator, because the major Wall Street analysts all do their best to independently derive a company's sales so they can front-run the stock before official earnings come out. Causality tends to run: Product announcements -> sales -> stock price -> reported profits -> hiring decisions (-> regional migration -> housing prices). A number of my college classmates went into equity analysis or management consulting positions, they would do things like canvas retail locations and count the number of shoppers walking out with the products of interest, or track search engine rankings, or sit on Google Trends to watch for changes in search volumes in the markets of interest. This is also why stock prices fall when a company "misses estimates", even if earnings are themselves up. Wall Street has a consensus estimate for how they expect the stock to do, and that estimate is priced into the stock. When the analysts are wrong (which isn't uncommon), the stock corrects based on the difference between the estimate and the reported earnings.

brianwawok 10y ago
The things you say are true, but your conclusion is not quite right. Stock price attempts to predict earnings. It is never perfect or earning announcements would never move the stock. The fact is, if you want to know at a 1 or 2 month with window how a company is doing, stock is not the place to look
- nostrademons 10y ago
  Sure, it's never perfect, but in context here it's relevant. Grandparent's point is that there is no evidence of a broad-based downturn in Silicon Valley, based on stock prices of major tech companies. Yours is that stock prices tend to be lagging indicators. I don't believe this is true in the general case (certainly it can be in specific ones), but if you believe that it is - how big is your short? If you believe that stock prices are lagging indicators and market consensus doesn't reflect reality, this is your chance to make money off that belief.
  - tehlike 10y ago
    With this logic, most of the bursts wouldnt happen, would they? In 2000 with the dotcom, why was it a bust and not a gradual decline? Same goes for 2007/8 bust. If it were not lagging, wouldnt you expect people would have realized this and bring market to its stable levels with similar shorting?
  - tehlike 10y ago
    Also there are various indices that try to predict market overvaluation, that seem to give red alert on cirrent valuations. The problem is, can you exactly time when it is supposed to bust? Not likely. Markets can stay irrational longer than you can stay solvent.

foxhedgehog 10y ago

Stock price also doesn't correlate with hiring if there's increased automation driving it.