In recent days I have gone over numerous reasons why the market is strong despite terrible news. To summarize:
- Market participants with modest levels of equity exposure
- Market participants who have been punished for panicking the past two summers
- Reasonable valuations
- Lean corporations
- Strong corporate bond markets
While I respect these positives and would not be shocked if the market managed to climb higher I do not like the risk/reward. With earnings estimates coming down the upside seems limited. The economic slowdown will not turn on a dime and can potentially gather momentum. If the slowdown worsens the downside could be significant. I see the market not responding to bad news and I respect it but I don't want to join the party.