The immediate catalyst for yesterday’s fall was primarily due to a slightly negative report from China. Oddly, there was even a translation problem, as another report out of China apparently noted the “credit transmission mechanism was broken,” whatever that means. Also, Latin America rattled the markets, as Argentina continues to “circle the drain,” and Brazil lurches leftward. Both the Turkish Lira and Russian Ruble hit new lows, reflecting their internal troubles. And, I know fear was up, because investors bid up the price of risk-free Treasury bonds, which forced interest rates down. Nobody seemed to even notice that the economic reports out of Europe were better than expected.
But, keeping our attention on what really matters . . . is what really matters. We’re in “earnings season,” when companies report their operating results. Beating the expectations of analysts is always important, and 63% of the companies reporting so far have beat those expectations. American businesses are looking fine. The bad news is that many companies have also downgraded their earnings estimates for the full year, which spooked some investors out of the stock market but is a normal part of the corporate game to lower expectations for the next earning season.
The S&P 500 is about 1,828 and could easily drop another 10 points today. There is a lot of support around 1,800, but a full 10% correction would take it down to 1,663. So . . . don’t start losing sleep until then, please!
Besides, you’ll recall most of the annual appreciation during the second year of a Presidential term happens in the fourth quarter. We have plenty of time! My mother told me that good things do come to those who wait. Now . . . wait!