Where are the earnings ?

Remember the Gordon growth model from your finance classes: the current value of any company are its distributed earnings ( say dividends ) divided by the cost of equity minus the growth rate. Applied to the S&P 500 today’s, we assume that earnings/dividends are at best staying constant, growth rate is decreasing in a slowing economic environment and cost of equity is increasing due to higher interest rates. If we had blindly applied that model to the S&P 500 in October last year, we would have missed a 25% gain of the S&P 500. While this rally was driven purely by valuation expansion, earnings now need to follow. Investors have an interesting earnings season ahead.