A correction leading to a downturn is likely before serious issues are resolved, such as: Central Banks are in a Blind Alley Central banks can not readily afford to be even more accommodating than they already are towards any market downturns. Even without doing anything much they are reneging on their overdue expectations to withdraw liquidity and tighten rates. The main support they can offer is confidence in their operations but this confidence will not last for long in the face of ineffective action during a market downturn. Insanely low Volatility The market has become a reflection of algo driven automated trading, relying on mean reverting methods with an emphasis to dampening volatility. This is not a normal state. Never before has the vix been so low, so much for so long. This is for both realised and implied or anticipated volatility. This is indicative of a central bank controlled and manipulated market. Politics: Debt ceiling debate, He
Earning for the S&P are coming in at over $130, above expectations, with every prospect of rising further in coming years. Share buybacks ensure a healthy prices and dividends. How to price in coming disasters? Unfunded pensions, absurd P/E ratios, a coming lack of central bank liquidity, rising rates, lack of productivity etc etc Will these factors show up as a lack of confidence, and hold back any recovery following a correction? Probably. How likely is a correction? Theres immense correlation between the Fed’s Balance sheet and the S&P 500. Both the Fed and the EU central bank are making noises about withdrawal of money from the system, This makes a correction a real concern but can we be assured of a recovery?