Macro Considerations

For the past few years market participants have been worried about a slowdown in China and a meltdown in the EU. Both are happening yet the S&P 500 is sitting a little more than 5% below a multi-year high. I do not like the current risk/reward on the long side but I respect the bull case enough not to be short.

There are a number of reasons that the market is not responding violently to the recent very bad news:

  • While corporate profits have been weakening, valuations are still reasonable. It will take a large drop in profits before valuations become a headwind.

  • After a 12 year old secular bear market, market participants are not positioned aggressively. There are simply fewer people to scare out.

  • Panicking has cost market participants a lot of money in recent years and like Pavlov's dogs they may simply be responding to their recent experiences. This is the most troubling reason  the market may be holding up.


Long time readers know that I usually give precedence to market related factors rather than macroeconomic related factors. I believe that macroeconomic factors are now very negative and they deserve increasing precedence. The economy is weakening, as are profits. There are numerous imbalances and the potential for a hard landing in China and a depression in Europe. This is simply too much for me to ignore now that it has begun to effect the economy and profits.

2 comments:

dadzers said...

dear tzachy,achi-tov, i have enjoyed your commentary for the last few years, and i would be loathe to make a suggestion/recommendation to you on a stock as you have your own method of investiing , but i am offering you this company for consideration-- 3d systems corp(DDD).. it has an unbelivable product, its charts are very strong...

Tsachy Mishal said...

Thank you. I will take a look after earnings season is over.