I think that investors take the economic slowdown as a sign that the Fed will lower interest rates. The masses, even professional investors, believe still in a soft landing.
Lower interest rates are favorable to business, so the stock market rises when interest rates fall. We saw many “Fed-is-done” rallies in late spring and summer, as investors bid up the stock market upon hoping or finding out that the interest rate rises were done.
Today was a wake-up call, but delusional investors did not heed. Kansas City Fed Chief and Bernanke issued economic slowdown warnings, and Walmart’s earnings report was lower than expected due to less consumer spending. How many more warnings do these dreamy investors need, before they wake up? They own shares of companies whose profits are falling, so they are losing value in their shares by the minute. The E part of P/E is falling, making the P/E much higher by the week. By the time the market falls, it’s gonna be fast…
