MarketMinder

Headlines

Here we analyze a selection of third-party news articles—both those we agree and disagree with.

Please note: Though we make every effort to source articles from freely available sites, we will also regularly include articles on sites that have limited content for non-subscribers. Doing so is increasingly unavoidable, as more and more financial media is published behind paywalls.


Imports to Largest US Port Drop, Hinting at Weaker Demand

MarketMinder’s View: We are darned hesitant to draw conclusions from the decline in inbound container ships at the ports of Los Angeles and Long Beach, which typically handle about 40% of ships from Asia, as the article notes. The year-over-year and month-over-month declines are both large, suggesting this isn’t just seasonal factors at work, but other factors beyond demand could easily be at play here. The article discusses one of them: Port of Los Angeles Executive Director Gene Seroka noted “part of the decline has to do with the cargo diversion to other parts of the country as retailers rewire their shipping routes to avoid a repeat of last year’s supply-chain snarls, and to avoid dealing with uncertainty around West Coast dockworker labor talks that still haven’t been finalized.” If traffic elsewhere is up, then that suggests demand is firmer than the article suggests. We would add that many of the container ships from Asia originate in China, which has been under repeat COVID lockdowns, which hampered both trade and factory activity. So the extent to which this is potentially a supply problem isn’t clear. Furthermore, goods trade is important, but with some US firms working through backlogs, it isn’t clear to us this development signals totally new news. Again, we think this is an interesting development and will keep our eye on port traffic, but one anecdote doesn’t make a trend.

US Audit Inspectors Heading to China After Landmark Agreement

MarketMinder’s View: We highlight this mostly to illustrate a broader point: General statements like this are only as good as the follow through. It might seem quite positive that China has agreed to let representatives from the US Public Companies Accounting Oversight Board (PCAOB) travel to Hong Kong to review the books of Chinese companies listed on US exchanges, which would be a step toward resolving a two-decade standoff that threatened to end with these companies delisting in 2024. But there are a lot of moving parts. It isn’t yet clear that the companies will be allowed to provide all the information that auditors need to review, and while US officials aren’t terribly optimistic, we would characterize investors as hopeful. They are portraying this mostly as a first step and encouraging a wait-and-see mentality, which seems about right. We would add that Chinese officials might have less incentive to give the appearance of wanting to preserve US listings once this autumn’s National Party Congress wraps up and President Xi Jinping has secured a third term, paving the way for a life-long rule. Leaders that have consolidated power tend to compromise less, in our experience. Now, we don’t see potential US delisting as a huge fundamental threat to US-listed Chinese stocks, considering most have parallel listings in Hong Kong. But it could be yet another big hit to sentiment. Overall, we see a high likelihood that regulatory uncertainty continues weighing on Chinese Internet stocks for the foreseeable future, even if the country avoids the long-dreaded hard landing.

Pound Falls as Weak Retail Sales Raise Fear UK Is in Recession

MarketMinder’s View: On the 30th anniversary of Black Wednesday, when the UK left the European Exchange Rate Mechanism and devalued the pound, it was inevitable that currency movements would lead coverage of retail sales, considering the pound is now at a 37-year low. A quick word on that before we discuss the retail sales report itself: You read that previous sentence correctly. The pound is weaker now than it was on Black Wednesday, which illustrates the actual trouble then. The problem wasn’t the currency itself, but the effort it took to defend the currency peg as Germany raised interest rates to prevent overheating as its economy recovered quickly from an earlier recession. Defending the peg required raising rates much higher than economic fundamentals warranted and deploying foreign exchange reserves. Those efforts will always prove fruitless, as currency pegs are inherently unstable, and discarding the peg returned monetary policy flexibility at the expense of a weaker currency, which paved the way for a multiyear economic expansion. Today the pound is falling due to market forces, which is far less disruptive than a sudden devaluation when a peg disappears. As for retail sales, volumes fell -1.6% m/m, with sales down in all categories. The ONS blamed both high consumer prices and high household energy prices, which a separate report showed are becoming unaffordable for about half of households that pay for energy. So all in all, not a good report. But sales have been falling for well over a year now in volume terms, so we are skeptical that there is much new here for stocks to digest. Recession fears, too, are widely known. Hard as it can be to look forward when data are bad and fear reigns, we think it is the best move for investors seeking long-term growth. Stocks are forward-looking, after all, and past data don’t predict the future. Rather, with expectations increasingly dour, it shouldn’t take much to deliver positive surprise.

Germany Takes Over Russian Oil Subsidiary, Securing Control of Key Refinery

MarketMinder’s View: Usually a government seizing a foreign company’s assets isn’t a beneficial development for markets, given the obvious implications for property rights and clarity surrounding regulations. In this case, however, we doubt it much chills investment and the goods likely far outweigh the bads, as the assets in question are oil refineries owned by Russian state-run oil giant Rosneft. Not only were the refineries at risk of shutting down as sanctions hindered their parent company’s cash flows, but they were threatening to refuse to refine non-Russian oil, and Germany is on the verge of implementing a ban on Russian crude. Hence, the German government has placed Rosneft’s German subsidiary in a trust for the next six months “to ensure continued operation” of its refineries, which account for about 12% of the country’s refining capacity. Keeping them online (and preserving the thousands of jobs there) should help support supply of gasoline, jet fuel and other refined petroleum products—an incremental positive against the backdrop of energy doom dominating German headlines right now.

Investors Didn't Suddenly Discover 'Inflation' on Tuesday

MarketMinder’s View: Headlines have blared about inflation and its impact on everything from stocks to Fed decisions this year, so we share this article because it offers some sensible perspective on how markets and the economy work. Many presumed Tuesday’s stock selloff was due to disappointing inflation data, which is possible—day-to-day volatility may arise for any (or no) reason. But to argue August’s CPI report surprised stocks seems like a stretch. Why? “… [M]arkets are relentless information processors. They’re pricing the knowns, including the prices of consumer goods, all day and every day. Applied to CPI and other constructed measures of what would at best be a consequence of inflation, it’s the height of naivete to presume that the CPI’s numerical outcome wasn’t to a high degree pre-priced. That’s what markets do. They’re a look into the future, which means markets anticipate measures like the CPI all day and every day.” Additionally, this piece soundly argues why the economic impact from Fed rate hikes is overstated—in a private sector-driven economy and global credit system, policymakers’ influence is limited. “People borrow money for what it can be exchanged for, which means credit is created all day and every day all over the world. The cost of credit and the amount available is a consequence of global production.” US monetary policy has some influence on the cost of credit, but businesses and households are considering other factors, too—many of which are global—and the Fed is much more of a rate follower than a rate setter. Now, the second half of this piece wades deep into speculative waters about what drove Tuesday’s market volatility, raising the prospect of the war in Ukraine escalating into a nuclear conflict. The conclusion acknowledges this is only a possibility at this point, but successful investing is based on probabilities. Moreover, ascribing a cause to daily market volatility nearly always comes down to making an unprovable hypothesis. That doesn’t make attempts to do so uninteresting, but pinning this stuff down is generally impossible—and backward-looking. For more, see our Tuesday commentary, “Our Take on Tuesday’s Sharp Swings and CPI.”

China Braces for a Slowdown That Could be Even Worse Than 2020

MarketMinder’s View: With a spate of official Chinese economic data coming out tomorrow, the titular sentiment reveals how dour experts are towards the world’s second-largest economy these days. “Growth projections have come down steadily since March, when the official target of around 5.5% was first disclosed. The consensus in a Bloomberg survey is for the economy to expand 3.5% this year, which would be the second-weakest annual reading in more than four decades. … It’s not just China’s strict Covid Zero policy of lockdowns and mass testing that’s buffeting the economy. A housing market collapse, drought, and weak demand both at home and overseas have all undercut growth.” This roundup dives into several of those headwinds in greater detail, and we agree many of them (especially COVID lockdowns) are weighing on Chinese economic output, which impacts the global economy given the country’s role in global supply chains, production and demand. However, based on the tenor of the forecasts shared here, many experts seem to be preparing for the worst-case scenario—worth keeping in mind for investors, as it signals where sentiment is currently. Even weak growth can beat “hard landing” expectations, and a slowing-but-still-expanding China contributes to and benefits the global economy.

Consumer Spending May Be Better Than It Looks

MarketMinder’s View: This quick hit on August retail sales provides some useful high-level reminders about economic data’s limits. The article notes overall sales rose 0.3% m/m (not adjusted for inflation) from July, though July sales were revised down from a flat reading to -0.4% m/m. After running through some underlying developments influencing summertime retail—e.g., falling fuel prices and back-to-school shopping—the article notes consumer spending may be returning to pre-pandemic trends, evidenced by ongoing declines at furniture and home-furnishings stores (beneficiaries of stay-at-home spending). However, “What is difficult to ascertain is how reduced spending on items such as furniture is affecting sales elsewhere. Although the retail-sales report does encompass sales at restaurants and bars, it has nothing to say about other services categories, such as travel, dentist visits and rents. All told, the report accounts for somewhat less than half of consumer spending.” Yep: Retail sales get lots of eyeballs, but they don’t capture most spending. The conclusion ponders whether consumers are in retreat or spending their capital elsewhere, and while data will shed some light on that front in the coming months, forward-looking stocks aren’t waiting for confirmation. In our view, they have long since moved on from last month’s retail sales and are looking ahead to economic activity over the next 3 – 30 months or so—and we suggest investors take a similar approach when making portfolio decisions.

New York Manufacturing Index Indicates Modest Contraction in September

MarketMinder’s View: The New York Fed’s Empire State Manufacturing Index registered a -1.5 reading in September—still implying contraction in manufacturing activity though a notable improvement from August’s -31.3. For further evidence of easing price pressures, “On the inflation front, the prices paid index tumbled to a positive 39.6 in September from a positive 55.5 in August, while the prices received index slumped to a positive 23.6 in September from a positive 32.7 in August.” Separately, we found a broader development interesting: The Philadelphia Fed’s regional manufacturing activity report unexpectedly dipped in September after a positive August. For those scoring at home, you may recall the situations were reversed last month: New York’s big contraction disappointed (and naturally grabbed lots of attention) while Philly’s positivity beat consensus expectations. In our view, that is a microcosm of how mixed US economic data are these days. That isn’t inherently a negative for markets, though. When baseline expectations are for a big economic slowdown or even recession, a muddled reality could surprise to the upside. For more, see our 8/31/2022 commentary, “An Economic Data Check-In.”

While Inflation Takes a Toll on U.S. Seniors, Billions of Dollars in Benefits Go Unused

MarketMinder’s View: News you can use! As this article relates, seniors on fixed incomes may be feeling strapped as inflation takes a bite out of their monthly budgets while Social Security’s cost of living adjustment has yet to kick in. But there are programs available offering some help. For example, “more than 3 million adults 65 or older are eligible but not enrolled in Medicare Savings Programs, which pay for Medicare premiums and cost sharing.” For more information on help you or someone you know may qualify for, read on! “In every community, Area Agencies on Aging, organizations devoted to aiding seniors, perform benefits assessments or can refer you to other organizations that conduct these evaluations. (To get contact information for your local Area Agency on Aging, use the Eldercare Locator, a service of the federal Administration on Aging, or call 800-677-1116 on weekdays during business hours.) Assessments identify which federal, state, and local programs can assist with various needs — food, housing, transportation, health care, utility costs, and other essential items. Often, staffers at the agency will help seniors fill out application forms and gather necessary documentation.”

As Markets Wobble, Buy the Stocks That Pay You Back

MarketMinder’s View: As this article posits the view dividend-paying stocks offer shelter from the storm, please note that MarketMinder doesn’t make individual security recommendations. Specific companies mentioned serve only to highlight a broader investment theme: Overt attention on dividends can lead you astray. The article trots out a common trope in rocky times: “Dividend paying stocks are in vogue again, even as long-term government bond yields have surged dramatically this year. Traders seem to be craving quality blue chips that offer steady (and often growing) dividends. These can be a more exciting investment than stodgy Treasuries. Quarterly or annual dividend payments provide good income streams for investors who need cash in the short-term. And for those playing the longer game, dividends can be reinvested to buy even more shares in those same companies.” While this advice may seem logical—and we have nothing against dividends per se—a dividend focus can take investors’ eyes off their portfolios’ long-term total return (price appreciation plus dividends), which is what really matters for reaching your financial goals. Weighting a portfolio based on stocks’ dividend returns alone strikes us as backward-looking because it generally leads to an emphasis on value stocks. Value has outperformed in this bear market—and dumping growth stocks now may feel like the right thing to do—but you can’t buy past performance. Instead, look ahead to the total return stocks are likely to deliver moving forward. We don’t know whether a new bull market is already underway, but given where sentiment is relative to reality, we think one is close. The stocks that do best in a recovery aren’t usually the ones that performed well during the downturn—rather, those that got hammered hardest often bounce strongest, which is worth considering looking ahead. For more on how we think investors should approach dividends, please see our commentary last year, “The Dividend Divide.”

UK Inflation Falls for First Time in Nearly a Year

MarketMinder’s View: In the UK, “Annual consumer price growth slowed to 9.9% from July’s 40-year high of 10.1%, the Office for National Statistics said on Wednesday. This was its first drop since September 2021 and below expectations in a Reuters poll for it to rise to 10.2%. ... CPI rose by 0.5% [m/m] in August from July on a non-seasonally adjusted basis—below economists’ forecasts of 0.6% and less than the month before. Prices for vehicle fuels and lubricants dropped by 6.8% in August, their largest monthly fall since April 2020, and producer price data showed lower pressure in the pipeline.” Now, similar to the US, core UK CPI (which excludes food, energy, alcohol and tobacco prices) accelerated to 6.3% y/y from July’s 6.2%. Moreover, economists say headline inflation likely still has higher to go when energy caps reset, though new Prime Minister Liz Truss’s recently announced plan to freeze energy costs through the next two winters may negate this factor. All this is prompting chatter—and fear: “Financial markets see an 80% chance that the BoE [Bank of England] will raise rates by 0.75 percentage points to 2.5% on Sept. 22. This would be its biggest rate rise since 1989, excluding a brief attempt to bolster sterling during a 1992 exchange rate crisis.” But take a step back and consider: What is so much different from before the latest inflation print? Little here is new or surprising, as inflation has dominated headlines worldwide this whole year. Moreover, even before today, the UK’s 3-month Gilt yield was hovering just over 2.5%, per FactSet, implying markets have already priced in a rate hike to that level. That one backward-looking inflation reading (showing overall deceleration) provokes so much worried speculation signals how widespread the Pessimism of Disbelief (PoD) is—the dismissal of any good news in a rush to accentuate the negative. Rather than be discouraged, we think investors should take heart: PoD tends to be rampant as a new bull market forms.

Chinese Manufacturers Get Around US Tariffs With Some Help From Mexico

MarketMinder’s View: As we pointed out repeatedly when the Trump administration’s harsh trade rhetoric towards China arose, tariffs are full of holes, defanging their economic impact more than popularly feared or cheered. This article is the latest to show why, detailing how “a prime spot between Mexico’s industrial capital and the US border, Hofusan has become a haven for Chinese manufacturers looking to sidestep US tariffs and shorten supply chains that have been strained to a breaking point during the pandemic. The 11 plants and warehouses on the 850-hectare (2,100-acre) estate are part of the latest chapter in Chinese capitalism: The country dubbed the world’s factory now also exports white-collar managers to set up and run operations in places such as Vietnam, Thailand, and Mexico.” In part because of the US’s revamped free-trade deal with its North American neighbors, Chinese goods made in Mexico “can travel across the border duty-free, whereas one shipped to the US from China would be hit with a 25% tariff ... Chinese investment in Mexico jumped from $154 million in 2016 to $271 million the following year, when Donald Trump took office threatening a trade war. The pandemic’s supply-chain snarls and the angst caused by Chinese President Xi Jinping’s tech crackdown have catapulted yet more Chinese companies across the Pacific, with investment in Mexico hitting just under $500 million last year.” Not surprisingly, in our view, multinational businesses tend to be adept at delivering products and services at competitive prices to their customers, wherever they are located—the profit incentive is powerful. Tariffs and other trade barriers aren’t great economically speaking, but the associated angst is usually out of proportion to their actual disruption. For more on why the Biden administration’s tariff extensions aren’t any more damaging, please see last year’s commentary, “The Resiliency of US-China Trade Ties.”

EU Expects to Raise €140bn From Windfall Tax on Energy Firms

MarketMinder’s View: Here are some of the details on the EU’s long-awaited plans to address its energy woes: “the [European Commission (EC)] wants oil and gas companies to pay the 33% ‘solidarity contribution’ on their profits, although EU member states would be free to set higher levies. Low-carbon electricity generators, such as wind, solar and nuclear firms, would have their revenues capped at €180 per kilowatt hour, which is less than half current market prices. These firms have enjoyed a profits bonanza as their revenues are linked to the price of expensive oil and gas. ‘A cap on outsize revenues will bring solidarity from energy companies with abnormally high profits towards their struggling customers,’ [EC Vice President Frans] Timmermans said. EU officials expect to raise €25bn from the tax on fossil fuel producers, while the cap on low-carbon firms is expected to raise €117bn. The revenues could be recycled to consumers as direct rebates, to fund insulation and other efficiency measures or the switch to low-carbon technologies.” While the details are new, this follows the footsteps of similar measures in Spain, Italy and the UK (which London plans to rescind, though the government could always change its mind)—and isn’t too far off the initial proposals we outlined earlier. Now, while we understand the political appeal of a windfall tax, the economic risk of unintended consequences looms, too—a new duty could discourage investment, which would set back supply remedies. However, nothing here is out of the blue, sapping its surprise power and ability to roil stocks. As we noted before, just getting clarity on the EU’s approach can help markets move beyond the energy measures’ likely economic effects.

Sweden Election: PM Magdalena Andersson Concedes Victory to Right-Wing Opposition

MarketMinder’s View: With 99.9% of votes counted in Swedish elections, “the Moderates, Sweden Democrats, Christian Democrats and Liberals hold a two-seat lead over the governing Social Democrats. ... If results were confirmed, the [four-party bloc] right-wing opposition would win 176 seats in the 349-seat parliament.” Grabbing attention: “Never before have the Sweden Democrats, a party who relies on anti-immigration and nationalist rhetoric, been part of a government. The party has so far won more than 20 percent of ballots, becoming the second-biggest party behind outgoing Prime Minister Magdalena Andersson’s Social Democrats, which have dominated Swedish politics since the 1930s. The Sweden Democrats are set to overtake the Moderates, having gained 20.6% of the vote compared to the coalition 19.1%.” Now, please note, MarketMinder is nonpartisan and favors no party or political ideology over another. Our analysis focuses on politics’ market and economic impact, and rather than sociological ramifications, we are more interested in how elections shape law-making bodies. On that front, consider: Should the results stand as currently projected, the current governing Social Democrats and their coalition would take 173 seats to the right-wing bloc’s 176 seats—a razor-thin edge of 3 seats. Moreover, the right-leaning bloc is far from a united front, which likely forces parties to compromise to pass legislation. There may be a new government coming in Sweden, but gridlock still appears likely to reign, in our view.

This Is How Much Social Security Benefits Are Likely to Rise Next Year

MarketMinder’s View: With the government’s fiscal year ending in 17 days, many are turning their attention to the annual cost-of-living adjustment (COLA) for Social Security benefits. While that won’t be known immediately at the fiscal year’s end, it will be final in September’s Consumer Price Index release. The COLA is based on the year-over-year change in September’s Consumer Price Index for Urban Wage Earners and Clerical Workers. This is not the headline CPI you see reported in headlines commonly. It generally rises a little faster, as was the case in August 2022 (it rose 8.7% y/y versus the headline 8.3%). This article bemoans the fact that the change comes well after prices have risen, which is true enough. But looking forward, if we do continue to see signs of slowing inflation, that could work in retirees’ favor this time.

Germany’s Chancellor Scholz: ‘We Will Make It Through This Winter’

MarketMinder’s View: Obviously, German Chancellor Olaf Scholz has incentive to paint a rosy picture of the energy situation confronting his country, but we do think some aspects of this report are worth keeping in mind. Regarding the future beyond the winter, “‘In January next year, the first of these new [liquefied natural gas import] terminals will begin their operations and their pipeline connections will be expanded and grown,’ Scholz said. ‘By the end of next year, we will likely be ready to import [gas] — in Wilhelmshaven, in Stade, in Brunsbüttel, in Lubmin — in four locations at least, and we will then be able to import all the gas we need independently of Russia,’ he added.” Furthermore, Scholz noted that several nuclear plants slated to be shuttered will remain online and gas storage is filling generally faster than appreciated across much of Europe. Given the backdrop of fear over energy shortages, blackouts and plant outages, we think this highlights the potential for positive surprise over Europe’s energy situation this winter and, especially, beyond.

The Dollar Is Super Duper Mighty Right Now. Here’s What That Means for You

MarketMinder’s View: This article is super duper mighty confused about what the strong dollar actually does and doesn’t mean. Now, to be clear the dollar is very strong right now. As noted, “The US Dollar Index, which tracks the dollar versus the British pound, euro, Swiss franc, Japanese yen, Canadian dollar and Swedish krona, has soared nearly 13% this year and is trading near its highest level since May of 2002.” A broader Fed gauge that measures the dollar against 26 currencies is near an all-time high set earlier this year. But this article treats that as a pure negative without getting into any of the offsetting positives. Yes, the strong dollar could hurt overseas revenues for big US multinationals, but it could also help lower their input costs. It is also well known, to the point that most firms hedge against currency swings and report revenue and profit in currency-adjusted terms to strip out the temporary, non-fundamental moves. Yes, US exports could see headwinds from increasing costs in foreign currency, but imports would be cheaper—helping ease inflation. (Although we would add that exporters and importers also have to pass along currency effects to consumers for either of those to happen, which isn’t assured.) Lastly, we struggle to comprehend any of this: “The strong dollar could lead to a further pullback in oil prices, since crude (like other commodities) trades in dollars. Lower energy costs would obviously be welcome news to consumers around the globe who are struggling to pay bills because of inflation. But oil stocks are, by far, the best-performing sector this year. So if energy prices continue to slide (crude prices are down nearly 5% in the past month) then that could be bad news for the broader market.” No, the strong dollar doesn’t drive oil prices—supply and demand for oil does—and why on earth would the Energy sector’s past strength imply forward-looking trouble for stocks if oil prices fall more? Why are we presuming all else would be equal going forward when that is super unlikely ever to be true?

US Banks Lost a Record $370 Billion in Deposits Last Quarter

MarketMinder’s View: Well, they didn’t lose them in the sense that they can’t find them. Rather, customers withdrew a net $370 billion from deposit accounts in the US banking system and either spent or allocated them elsewhere, like higher yielding Treasurys, I Bonds or bank-like assets (think: money market funds). But lest you think that is super-ginormous and a problem, consider: “Deposits fell to $19.563 trillion as of June 30, down from $19.932 trillion in March, according to the Federal Deposit Insurance Corp. The outflow in the quarter isn’t a problem for banks, which are sitting on more deposits than they want. Deposits in the banking system usually stay relatively stable, but swelled by some $5 trillion in the past two years due to pandemic stimulus. … When the Fed started increasing its benchmark rate this year, banks expected—and wanted—some customers to move their money to places offering higher interest payments, such as government bonds.” So even after this big outflow, banks are flush with deposits. That limits the effect of Fed rate hikes on lending, since those largely raise the cost of interbank borrowing. Banks largely don’t need to borrow from one another when they have a huge deposit base.

BofA Survey Shows Investors Fleeing Equities en Masse on Fear of Recession

MarketMinder’s View: “A historically high 52% of respondents said they are underweight equities, while 62% are overweight cash, according to the bank’s global fund manager survey, which included 212 participants with $616 billion under management in the week through Sept. 8. As concerns over the economy escalate, the number of investors expecting a recession has reached the highest since May 2020, strategists led by Michael Hartnett wrote in a note on Tuesday. Sentiment is ‘super bearish,’ with the energy crisis further weighing on risk appetite, they said. A net 42% of global investors are underweight European equities, the largest such position on record.” Chalk this up as yet another survey showing respondents are extremely bearish—a sign, in our view, that the pessimism bull markets are normally born on is in place now (HT: Sir John Templeton). But as for whether investors are really so broadly light on stocks, fund flows just don’t show it. We see this coverage, which paints all this in a negative light, as a little bit reversed—such sentiment is a contrarian indicator—and some of it is a hunt for capitulation, the point when investors broadly throw in the towel near the bear market’s bottom. We aren’t so sure that will actually come this time, at least in the traditional sense of the term involving big equity fund outflows to things like cash, bonds and gold, because those assets are performing as poorly as stocks or worse lately.

Sliding Earnings Forecasts Pose Next Test for Markets

MarketMinder’s View: Think it through even just briefly, and this piece basically debunks itself. It argues stocks are now at risk from weakening corporate earnings, citing analysts reducing their Q3 2022 earnings estimates by the most since Q2 2020. It claims modest earnings growth year to date has made markets a bit complacent, setting them up for disappointment as results get worse. Thing is, stocks don’t move one-to-one with corporate earnings. Stocks are leading indicators. Earnings are lagging. The main claim here actually proves the point. In 2020, stocks bottomed in late March. That is at the end of Q1. By the time analysts were cutting estimates, stocks were already recovering—they had priced lockdowns’ economic impact and moved on. They kept rising throughout the year even as earnings tanked. This year, the S&P 500 has been in a bear market (typically a prolonged decline of -20% or worse with a fundamental cause) since early January. Is it not possible that markets have already assessed whatever earnings damage analysts are now starting to foresee?