Does Consumer Spending Drive Earnings Growth?

Consumer spending drives economic growth, which in turn drives corporate earnings growth. However, earnings tend to revert to their long-term trend due to economic events, and the current exponential growth trend is $195/share. The cause of earnings reversals is unique to each event, but ultimately leads to a sharp price adjustment. Forward earnings are highly correlated to the expectation of earnings, which is driven by consumer spending. Earnings come from revenue, and revenue is generated by selling products or services to customers. Personal consumption expenditures (PCE) are a key measure of consumer spending and track closely with forward earnings growth. However, earnings can be manipulated through cost-cutting, stock buybacks, and accounting gimmicks, which can skew valuation analysis. Understanding consumer sentiment and spending is crucial for investors, as it drives forward earnings growth and ultimately market pricing. To mitigate risk, investors should focus on companies with strong revenue growth, incorporate revenue-based valuation metrics, and use hedging strategies to protect capital during earnings-driven market downturns.