Calhoun: Calm Before Storm

“The idea that an economy that performs so poorly that it keeps the Fed on the sidelines is good for stocks is one that can only be based on recent history, one that starts after the 2008 crisis. …

“At some point bad news will be bad news for stocks again but the rest of the markets are already reacting to the bad news as if it were exactly that. …

“Meanwhile, corporate profit margins appear to have peaked and debt incurred for previous stock buybacks is starting to bite, two not entirely unrelated events. Interest expense is eating into profits at the same time revenue growth is harder and harder to come by. And after so many years of low rates, refinancing just doesn’t get companies the jolt to earnings it once did. … leaving company profit growth at the mercy of top line growth, something conspicuous only by its absence the last couple of years. …

“Widening credit spreads, Treasuries and gold outperforming stocks indicate that some parts of the market are already preparing for the storm. Stocks are about the only asset yet to batten down the hatches. If this is the calm before the storm, stock investors are about to get swept overboard.”

— Excerpt contributed by Jason Kelly

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Z-val: Joseph Calhoun
Via: Alhambra Investment Partners
Date: 10/18/15
Disposition: Short-Term Bearish
S&P 500 on 10/16/15: 2033
S&P 500 on 1/15/16: 1880
Change: -7.5%
Judgment: Right

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