The State of the Markets:
In pondering the macro picture over the weekend, it occurred to me that the current environment can be summed up with one simple question: How much is enough? As in, how much do stock prices need to correct from their January blow-off highs in order to create a fairly valued market where longer-term, fundamental oriented investors return to the game in a meaningful way? Or, put another way, how much time needs to go by for rising earnings to create values in the market again? A month? A quarter? A year? How much is enough?
The key problem in trying to come up with an answer is there are host of additional "how much?" questions that need to be answered first. Sure, we can do some math and project what forward P/E's might look like in a few months (and according to "the man who moves markets" - AKA JPMorgan's Marko Kolonavic - valuations are looking better and better). However, there is an awful lot of uncertainty in the markets right now. And until we get some clarity on some of these issues, the question are likely to remain unanswered and the sloppy action is likely to continue.
For example, one of the key questions right now is how much is global growth slowing? Or is it actually slowing at all? Since a fair amount of the recent bull run was based on the idea of synchronized global growth, a slowdown in growth means adjustments need to be made.
Next up is the question of how much inflation is percolating? Everybody on the planet knows that there are "some" inflationary pressures thanks to commodity prices, tariffs, the tightening labor market, etc. But how hot will inflation become in the current environment?
The next question ...