Don't Give the Fed Too Much Credit: Ritholtz Chart

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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I'm off to Maine for a few days of discussing economics, fishing and carousing. Before I go, though, I wanted to share a chart we built as a rebuttal to the (overused) statement: "The current rally is being driven by Fed printing and nothing else."

Sorry, but I, and my chart, beg to differ.

The chart below shows that the rally has been driven by a huge recovery in corporate revenues and profits following the financial crisis of 2007-09.

The white line represents the price of the S&P 500 index, the red line represents revenue and the blue line represents earnings. As you can see, earnings led the rally from the bottom, multiple expansion followed and, most recently, earnings have accelerated. Higher revenues have driven stock prices higher as well.

I would be remiss if I didn't acknowledge that lower borrowing costs reduce expenses for companies. That is a legitimate observation of the impact of the Fed in the current recovery. Companies have also chosen to engage in large buybacks, for a variety of reasons, and that plays a role, too.

However, the storytellers would have you ignore the enormous improvement in revenue and profits in order to stick to the story that the market gains are credited only to the Fed.

Sorry, but that narrative fails.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Barry L Ritholtz at