In other words, saying the market rises when earnings per share go up is like saying a new bull market starts when short-term interest rates rise.
Additional points that support my belief that "the market is earnings driven" philosophy is nothing more than a myth are:
* Short-term interest rates and earnings per share have exactly the same cyclical turning points.
* In mid-1990, the market took off in spite of declining earnings per share. On the other hand, in 1994 the market stalled as earnings per share were in a strong up trend since early 1992. What was happening to earnings did not seem to matter.
* What ignited the market in 1990 was the increase in liquidity accompanied by lower short-term interest rates. And what worried the market in 1994 was soaring commodity prices and short-term interest rates.
In the end, it looks like trends in short-term interest rates and commodity prices are much better indicators than earnings per share to properly assess the prospect of a bull or bear market.
For more details on this subject, I recommend that you read Dr. George Dagnino’s book "Profiting in Bull or Bear Markets" (McGraw-Hill publisher).