Good Earnings Can’t Support an Over-Priced Stock Market – Ep. 348

The Correction is Over and the Bear Market is Resuming

As I have been speaking about in my last couple of podcasts, it looks like the period of relative calm in the markets is over and the next leg down has begun.  So the correction is also over – not the downward move – that is not the correction – this is the bear market.  The upward move was the correction. It was the first correction in this young bear market.  Technically it is not a bear market yet because we’re not down 20% but that is only a matter of time. So I think the correction is over and the bear market is resuming, the primary trend being down.

Dow Transports Big Losers

In fact, the U.S. stock market was down for its fifth consecutive day, although today was the biggest decline.  The Dow ended down 424 points.  We managed to close just above 24,000 at 24,024. But we were well below.  At the lows of the day we were down about 600 points.  Percentage wise we were down 1.74%. The NASDAQ, about the same, down 1.7%.  At the lows it was down close to 150 points on the NASDAQ.  Percentage wise, the Dow transports were the big losers, down 221 points – 2.08%.

Earnings Don’t Matter

Now, one of the things that investors have been counting on to support stock prices and, in fact, drive them higher, were earnings.  Everybody’s been saying, “Earnings are going to be higher!” Now what have I been saying on my podcasts, over the last several months?  I’ve been saying that it doesn’t matter, because all these great earnings, if they materialize, are already baked into the cake. They are already discounted into the price of the stocks. So in other words, they don’t matter. It’s “buy the rumor, sell the fact”.

Double Whammy of Faster Growth and Lower Taxes

If everybody knows that earnings are going to be good, well, they’ve priced in those expectations into the market.  Why do you think the market has gone up so much since Trump was elected President? It was on the anticipation of all these earnings that were going to come from a combination of faster growth and lower taxes. In fact, the lower taxes are why we were going to get the growth, so it was going to be a double whammy.  Well, all that was priced into the market.