Investing in stock market highs driven by earnings growth delivers superior historical returns compared to buying the dip
Executive summary: Expansión published an analysis showing that investing in stock market highs has historically produced better returns than buying the dip, particularly when the uptrend is fueled by genuine earnings growth rather than multiple expansion. This challenges prevailing investor behavior favoring contrarian strategies and suggests that earnings-driven bull markets may reward trend-following approaches, influencing asset allocation and timing decisions.
Who is involved: Retail and institutional investors, equity market participants, financial analysts, and commentators on investment strategy.
Likely next: Continued debate over market timing strategies; potential increased attention to earnings quality as a signal for equity exposure; possible flows into momentum or quality-focused equity funds.
Expansión reports that historical data shows investing during market highs, when supported by rising corporate earnings rather than multiple expansion, has yielded better returns than investing during downturns. The analysis emphasizes fundamentals over valuation multiples as the key driver of long-term equity performance. This challenges the common retail investor preference for buying dips, suggesting a shift toward trend-following strategies grounded in earnings momentum. The conclusion is based on historical patterns, not forward-looking predictions.
Timeline
- — El aumento de los beneficios apunta a máximos más altos (Expansión)
Analysis — what this means
Likely next events
- Ibex 35 quarterly earnings season begins mid-October 2026, providing fresh data on corporate profitability trends
- European Central Bank monetary policy meeting on September 10, 2026, may influence equity valuations and earnings outlook
- Q3 2026 EU corporate earnings reports due in October–November 2026 will test the sustainability of earnings-driven momentum
Sectors affected
- Equity asset management
- Retail brokerage and trading platforms
- Financial advisory services
- Exchange-traded funds (ETFs) focused on momentum or quality factors
Historical parallels
- 1995–2000 U.S. bull market driven by productivity-led earnings growth, preceding the dot-com bubble
- 2003–2007 global expansion fueled by rising corporate profits, not just liquidity
- 2009–2014 post-crisis recovery where earnings growth, not multiple expansion, dominated early returns