In this book, the five indicator categories used to time the stock market over the business cycle are corporate, economic, monetary, sentiment, and market. In this chapter, I look for the best method of using corporate data. By “corporate data,” I mean things like aggregate corporate profits and dividends.
Investment thinking has long assumed that corporate earnings and dividends are the principle driving forces behind stock prices. These tests partially confirm that thesis but not to the degree we would necessarily like. Only six out of the ten combinations of dividends, earnings, and interest rates showed robust characteristics, and they did not score high enough to be included in the final model.