EP 249: What Actually Drives Stock Prices? Sam Ro on Earnings, Valuations, and Market Noise

by Peter Lazaroff | Mar 25, 2026 | Podcast

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Market headlines change fast, but the questions long-term investors wrestle with tend to stay the same.

One week, everyone is focused on geopolitical tensions. The next, it’s AI, recession fears, valuations, or international markets. That’s part of what made this conversation with Sam Ro so timely. Sam does an excellent job of stepping back from the daily noise and reframing market news in a way that is actually useful for people investing with a five-, ten-, or fifteen-year time horizon.

In this episode, I talk with Sam about how he filters breaking news for long-term investors, why earnings still matter most, what elevated valuations do and do not tell us, why international diversification remains worth defending, and how investors can think more clearly by looking at the world through different lenses. If you ever find yourself wondering how much today’s headlines should really matter to your portfolio, this conversation is a helpful reset.

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Why Sam Ro’s Market Commentary Stands Out For Long-Term Investors (0:44)

I started by asking Sam to explain what readers get when they subscribe to his newsletter, Tker.

What stood out in his answer is something I’ve appreciated about his work for a long time: he comes from the news business, where the job is often to explain why the market moved on a given day, but he knows that most investors need more than a daily explanation. They need context. They need help translating market stories into something relevant for a retirement account, a long-term plan, or a diversified portfolio they intend to hold for years.

That is the sweet spot Sam tries to occupy. Yes, he pays attention to the day’s news, the research notes bouncing around Wall Street, and the narratives driving short-term market moves. But he makes a point of balancing those with historical perspective and a longer-term framework. That makes his work especially valuable for investors who want to stay informed without being pulled off course by every headline.

How To Think About Geopolitical Risk Without Panicking About Your Portfolio (4:25)

Because we recorded this conversation while geopolitical tensions involving the U.S. and Iran were making headlines, I asked Sam how he approaches writing about those kinds of events for his audience.

His answer was a great example of disciplined market thinking. Rather than jumping straight into the latest dramatic narrative, he starts by going back to previous work and identifying what has actually mattered in similar moments before. From there, he tries to make the connection between the event itself and the specific economic or market channels that could affect investors.

In this case, one of the main transmission mechanisms is energy—especially oil prices. But Sam points out that even there, the analysis is more nuanced than many headlines suggest.

He highlights three important shifts that make the U.S. economy less vulnerable to energy shocks than in prior decades. First, the U.S. has become a net exporter of oil, which creates offsetting benefits when prices rise. Second, the economy is less energy-intensive than it used to be, thanks to improvements in fuel efficiency and technology. And third, consumer spending tied directly to energy has been declining as a share of total consumption for decades.

That does not mean oil spikes would have no effect. Higher gas prices and energy bills still create headwinds for consumers. But it does mean that investors should be careful about assuming a geopolitical flare-up today carries the same market consequences it might have carried twenty or thirty years ago.

Why Earnings Still Matter More Than Scary Headlines (9:49)

One of the most important themes in this conversation is that while narratives may drive short-term volatility, earnings are still the long-term anchor for stock prices.

I mentioned during the episode that when markets sell off around geopolitical events, the long-term pattern is often far less dramatic than the headlines imply. In fact, historical data shows that markets have generally delivered positive returns in the six and twelve months following geopolitical shocks.

Sam connects that observation back to a core investing principle: if a news event does not materially alter the path of earnings, then much of the market move may simply reflect a change in risk premiums rather than a permanent impairment in value. In other words, investors may be applying a bigger discount to the same earnings stream because uncertainty has increased.

That framework matters because it helps explain why returns after market scares are often stronger than people expect. If prices fall while earnings expectations remain mostly intact, forward return potential can actually improve.

This is one of the clearest reminders from the conversation. Volatility itself is normal. What often feels so destabilizing is the story wrapped around the volatility. The better question is not just, “Why are markets down today?” but, “How is this likely to affect earnings over time?”

Separating Political Views From Investment Decisions (11:15)

Sam said something in this conversation that I think more investors need to hear: we have to learn to look at the world through different lenses.

You can have one view of the world as a citizen, a voter, or simply a person with strong convictions about policy and society. But if you are trying to make sound investment decisions, you also need a different lens—one focused on what actually affects the assets in your portfolio.

That may sound obvious, but it is incredibly difficult in practice. It is easy to let our feelings about a political development or policy decision bleed into our expectations for the economy or the stock market. Sam’s point is not that those things are unrelated. It is that they are not always related in the way people assume.

For investors, the question is not whether something is good or bad in a general sense. The question is how it affects earnings, margins, growth, and the cash flows behind the assets you own. That distinction is one of the reasons thoughtful market commentary is so valuable—and why emotional reactions to headlines so often lead investors astray.

What High Valuations Really Mean For Future Stock Returns (13:55)

From there, we turned to valuations—another topic that investors are always watching, and often misunderstanding.

I framed the discussion around a familiar return decomposition: stock returns over time come from changes in earnings, cash returned to shareholders through dividends or buybacks, and changes in valuation multiples. That last part—changes in how much investors are willing to pay for a dollar of earnings—is where a lot of market psychology shows up.

Sam’s take was nuanced and important. Yes, elevated valuations can be useful for setting expectations. Over long periods, higher starting valuations have tended to be associated with lower forward returns. But that does not make valuation a precise timing tool, or a complete explanation for what markets will do next.

He points out that one major reason valuations may deserve to be higher today than in the past is that corporate profit margins have been on a structural rise for decades. If companies are generating more profit from the capital they employ, then higher valuations can be justified. Put simply, better businesses often deserve higher prices.

That is why simple comparisons to long-term average price-to-earnings ratios can be misleading. Markets do not exist in a vacuum. Accounting standards, information transparency, regulation, business quality, and profit structures have changed meaningfully over time. Investors may reasonably be willing to pay more for earnings today than they were decades ago.

Why Valuation Is Useful For Setting Expectations—But Dangerous For Making Predictions (15:38)

Sam and I spent some time digging deeper into the common temptation to put too much weight on valuation metrics.

He made the point that while the historical relationship between starting valuations and long-term returns can look compelling on a chart, it is still only one variable—and a backward-looking one at that. It cannot capture future shifts in profitability, growth, innovation, or the many structural factors that influence business performance.

I appreciated his reminder that if you had overreacted to high valuations ten years ago, there is a good chance you would have missed one of the strongest stretches of U.S. market performance in recent memory. That happened in part because earnings growth and profit margins turned out to be much stronger than many expected.

He offered a great way to think about this: valuation is not gravity. Earnings are gravity. Valuation multiples fluctuate around that underlying force, and while those fluctuations matter, they are not the primary engine of long-term return.

That is why high valuations can be a reason to temper return assumptions without becoming a reason to abandon a sound investment plan.

The Case For International Diversification Is About More Than Geography (26:41)

We then moved into a topic I have spent a large part of my career defending: international diversification.

I referenced my own episode on capital market assumptions and pointed out how difficult it is to build portfolios around strong convictions about what any region will do over the next ten years. That is especially true when it comes to the U.S. versus international stocks.

Sam made a point that I think is often overlooked. Investing outside the U.S. is not just about getting exposure to non-U.S. economies. Many S&P 500 companies generate a significant portion of their revenues overseas, so geographic exposure alone is not the full story.

The real diversification benefit comes from differences in how companies operate across regions. Executive compensation structures, labor rules, tax regimes, retirement systems, shareholder priorities, and regulatory environments all shape how businesses are run. Those differences can create real diversification in economic behavior, profit structures, and market outcomes.

That is a much richer argument for international investing than the simplistic idea that it is only about accessing foreign GDP growth.

Why U.S. Stocks Have Outperformed—And Why That May Not Last Forever (28:47)

Sam also offered a helpful framework for understanding why U.S. stocks have outperformed for so long.

A big part of the answer is that U.S. companies have had higher profit margins than their peers in many other developed markets. That helps explain why they have deserved to trade at a premium. Better underlying business economics often lead to stronger returns and higher valuations.

But we also discussed something more recent: over the last few years, part of U.S. outperformance has come not just from better fundamentals, but from investors being willing to pay higher and higher multiples for those same fundamentals. That kind of valuation expansion is much harder to sustain indefinitely.

That does not mean international stocks are guaranteed to outperform from here. It does mean that when relative valuations stretch too far, investors should be careful about extrapolating the recent past too confidently into the future.

As I said in the conversation, one of the biggest risks for all-U.S. investors is forgetting that there have been very long stretches in market history when U.S. stocks underperformed cash. If someone is willing to own only U.S. stocks and live through those periods, that is one thing. But if that same person is likely to bail out or performance-chase when leadership changes, then a more globally diversified mix may be the more durable strategy.

Hard Data vs. Soft Data: Why Investors Need Multiple Lenses (37:11)

Toward the end of the episode, I asked Sam about the themes that continue to resonate most with his readers.

One of the biggest, he said, is the idea that we must learn to view the world through multiple lenses. That includes distinguishing between hard data, soft data, market data, and the narratives people build around all of them.

Hard data refers to measurable economic activity—employment, spending, output, transactions. Soft data refers more to how people feel—sentiment surveys, perceptions, confidence readings, and expectations. Both matter, but they do not always tell the same story.

Sam also points out that there is yet another layer beyond those: the biased or agenda-driven interpretation of data, where people use selective framing to support a worldview, a political preference, or a market call they already wanted to make.

This is one reason economic news can feel so confusing. The same underlying facts can be presented in ways that sound wildly different. Job growth can be slowing and still be positive. The economy can be cooling and still be expanding. Things can be getting worse while still being good.

That kind of complexity frustrates people, but it is also reality. And investors who can sit with that complexity are often better equipped to avoid making big mistakes based on oversimplified stories.

Why Market News Feels Personal—Even When It Shouldn’t (44:10)

One of the last points I made in the conversation is that economic data may feel less personal today than ever before.

People can look at the same economy, the same market, and the same set of facts and come away with completely different emotional reactions. That is partly because lived experience varies so much from person to person. But it is also because the media often blends hard data, soft data, market moves, and narrative spin into a single emotionally charged takeaway.

That makes Sam’s work especially useful. He does not ignore emotion or uncertainty, but he keeps returning to the variables that actually matter for investors—especially earnings, margins, and long-term business fundamentals.

That is a valuable discipline. Because if you are listening to this podcast or reading Sam’s newsletter to become a better long-term investor, the goal is not to react most strongly to the loudest story. The goal is to think more clearly about what matters and what does not.

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