Thoughts {10.23.18}

Markets are going to open somewhere between 1-2% lower today.  I could give you all the proximate reasons for today's sell-off but the reality is that there are too many short-term negatives hitting stocks all at once, we are still in a period of statistical weakness, the elections are likely weighing on the markets and we're not oversold enough yet to bounce.  In short it's been time for stocks to go down.

Stocks may have telegraphed this latest whoosh down when they tried to rally both Friday and yesterday and those rallies were met with selling.  A lot of trapped longs above where we're trading right now so it's possible it'll take us some time to eat through all that if we try to move higher later in the year.

Speaking of the elections, I took a look back to how the markets fared in 2016 and 2014.  I guess I could have gone back further but I didn't have enough time to do so.  In any rate a quick calculation shows that the markets on average gave up 5-7% during that some period in those years prior to US elections.  Again, these numbers were compiled quickly so don't take the exact range as gospel.  Just know that there's at a minimum a period of statistical weakness around the most recent elections.  

Do I think longer-term things have changed?  No, for reasons I've discussed many times in the past, the knowledge economy is so different and so vast that it is hard for me to be negative on a much wider time frame when I see all the exciting things happening out there.  I do, however, think it is entirely likely that stocks may spend some time consolidating the gains from the last two years.  

One of the reasons I think we need to digest those gains has been the rise in interest rates.  More on that at a later date.