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Fundamental indexing depends on the tendency of so-called "value" stocks to beat those favoured because of rapid profits growth.
Analysts extrapolate recent rapid profits growth into the future, even though profits cannot rise faster than GDP indefinitely.
On the positive side, the American economy appears to be recovering well and the first-quarter results season has showed rapid profits growth.
But many of those same companies have quietly shelved their expansion plans after complex market conditions — spotty electricity, poor roads and government ineptitude — frustrated hopes of rapid profits.
Instead, high p/e ratios and rapid profits growth tend to go together.It used to be the role of central bankers to take away the punchbowl when the party was in full swing.
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So buyers in the popular areas are unlikely to make a rapid profit.
GKN was a faller after Citigroup said that it sensed a "pause in the pace of its recent rapid profit rise".
Tenet's stock has dropped steeply since last fall, when it said that much of its rapid profit growth in the last couple of years came from "outlier" payments, which Medicare makes for treatment of especially costly cases.
Many investors are banking on the idea that the economy has entered a new era of rapid profit growth, and investments that depend on the words "new era" don't usually do so well.
That figure may be overstated a bit, given that Microsoft's accounting is extremely conservative, but even after discounting for that, the price clearly assumed many years of rapid profit growth.
This works especially to the advantage of firms with rapid profit growth, thus earnings that will be worth much more years from now.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com