Anyone who calmly says large swings in the market are a non-event probably doesn’t own a lot of stocks, or manage an equity portfolio for a living. But those that do can be led by the bombardment of headlines into a form of shell shock, one that leads them to attribute too many consequences to those wiggly lines on the chart.
It’s not that we’re complacent about near- term downside risks. Animal spirts count, and we entered 2018 at elevated US earnings multiples. At a chief economists panel in early January, we didn’t predict an outright drop for the year as a whole, but warned that with the good news on growth largely priced in, to paraphrase Truman, the big bucks stop here. That said, US 2018 earnings are being revised up (Chart), and that, combined with a drop in the index has made valuations look attractive, setting a floor for equities at some point.