The State of the Markets:
When stocks enter a corrective phase, the main question investors tend to ask themselves is, has anything changed from a macro point of view?
One of the problems with trying to answer this question is that corrections generally are born out of a period of high confidence and/or complacency. A period where everyone knows the bullish case. A period where everyone is confident about the outlook. And a period where everyone "knows" what is going to happen next. Well, until something changes, that is.
The point is that when you are comfortable with your premise and everyone agrees with your view, seeing a change in the environment can be tough. Things are going well. Nobody wants anything to change. So, first understanding and then accepting the facts that (a) something is changing and (b) you may need to make adjustments to your portfolio strategy, can be challenging.
From my seat, we are seeing this type of scenario play out in the here and now. For example, one of the key fundamental drivers of the current bull market cycle has been robust corporate earnings. Make no mistake about it; earnings have been strong and have been consistently coming in above expectations. In fact, analysts project that EPS (earnings per share) growth for the S&P 500 will come in at 26.4% for calendar year 2018. Impressive.
Yet during the current earnings season, stocks have generally not been rewarded for their earnings/revenue "beats." Companies report earnings and revenues that are above expectations, management says good things about the business, and the stock proceeds to decline. What gives?
Heading The Wrong Direction
Besides the obvious worries about the impact of tariffs and rising rates, there appears to be something bigger at work here. As in, this ...