February 12, 2019

We might see an Earnings Recession

Is the stock market back in a Bull market and are we going to see new highs ? 

Warren Buffett famously said that higher stock prices are the enemy of the rational investor.

Price has a way of changing sentiment but we should not lose sight that upside reward v. downside risk is a dynamic and quickly changing calculus.

Reward doesn’t get better with higher stock prices, it deteriorates when stocks are advancing. Often, as might be the case, sharp and unrelenting advances lull us into a false sense of security, particularly when global economic growth is so fragile and beginning to show signs of deteriorating (from a rate of change standpoint).

As I mentioned in yesterday’s Bloomberg interview, we are not quite back to the euphoria of late January, 2018 or mid September, 2018 – but we are definitely back into the Bull Market in Complacency.

It can be argued (and I do), that the market has been materially fueled, in no small measure, by the dominance and impact of the machines and algos – that worship at the altar of price momentum. More than ever, our markets have become a one-way trip (up or down) – difficult to navigate (as suggested by all the long/short hedge fund closures in the last 18 months) – and hard to interpret and trade.

via Realinvestmentadvice