Mohamed A. El-Erian , Columnist

Why Stocks Don’t Reflect Improving Economy and Earnings

Better fundamentals and more buybacks may already be priced in.

May 14, 2018 at 6:00 AM UTC

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

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Photographer: Bryan R. Smith/AFP/Getty Images

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Neither this year’s impressive corporate earnings results nor the synchronized pickup in global growth nor record levels of stock buybacks by companies has led to impressive gains in stocks. Despite a seven-day winning streak, the Dow Jones Industrial Average ended the May 11 trading session just 0.03 percent above where it started the year. It’s a similar story for the broader S&P 500 Index, which ended last week at about its Jan. 2 level.

The performances of the Dow and the S&P suggest the improvement in economic and corporate fundamentals has been accompanied by a derisking illustrated most vividly by the decline in market price-to-earnings ratios. Indeed, among the three most widely followed U.S. stock indices, only the year-to-date gain of 6.5 percent in the Nasdaq Composite Index seems consistent with the more generalized amelioration in the performance of the corporate sector, the overall economy and buybacks.