Interesting article but i think b&n is a poor example. They traded at about 5x earnings ex nook which was a constant money loser. The idea that not only would it be jettisoned but might even be worth something was attractive. Also the announcement was made with the earnings release so it wasnt necessarily the only reason for the 12% pop.
clearly profits are what matter, but somethings wrong with that chart. He said its department of commerce data, but it doesnt seem to be consistent with the results of SP500 companies. As reported EPS were up ~2.7% yoy for 1st quarter and operating earnings were up ~9.6%. Share count was up slightly.
Ok I read the GDP report, that is what they reported. Of course the make up of total profits differs from that of S&P companies and the accounting is different as well including the inventory and capital consumption adjustment. Those adjustments this quarter totaled 228 billion dollars, so its actually not surprising to see the difference. The 1st quarter was unique and it will be interesting to see how things develop from here.
Certainly current valuations are dependent on profits being maintained. Its 1 thing to pay 19x earnings, very unlikely that investors would be willing to pay 30x earnings if profits decline.