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.