Excerpt from fund manager John Hussman’s weekly essay on the US market:
As of last week, the Market Climate for stocks remained characterized by unfavorable valuations and unfavorable market action, holding the Strategic Growth Fund to a fully hedged investment stance. The “clearing rally” from the oversold conditions of recent weeks became a fully extended short-term overbought condition last Monday. At present, the stock market features an unfavorable Market Climate, a still somewhat overbought short-term condition, and an absence of any important seasonal support. While it's possible that investors will take hope from the weak employment report and upcoming earnings season, there's a wise rule that Richard Russell has noted over the years: “in a bear market, anything that can go wrong will go wrong.”
That idea is relevant here, not because our own approach is defined in terms of bull/bear distinctions (it isn't), but rather, because I've noticed over the years that the market's reaction to “news” of any sort tends to key off the prevailing Market Climate more often than not. So given a piece of ostensibly good news – a tepid employment report that somewhat increases the likelihood of a “Fed pause” (not that I think it matters) – the market sold off Friday “despite” that report, or possibly because of concern about earnings, but in any case, investors found that seemingly “good” news produced a bad market outcome.
My expectation for that sort of negative bias will shift, of course, as soon as we observe a favorable shift in the observed Market Climate. For now, however, there's not much evidence in market action that investors have a broad, robust preference to accept risk, nor is there much evidence from valuations that an exposure to market fluctuations has much long-term investment merit.