SocGen's Andrew Lapthorne writes that "fundamentals are nearly always strong when the market starts to sell-off." And, as the strategist adds "when markets correct, the standard retort is that in the long-term it pays to stay invested and that the fundamentals remain strong and supportive."
To determine the validity of this statement, SocGen looked at prior corrections in the S&P 500 to see how fundamentals looked at the point when the market turned. What Lapthorne found using data since 1985, is that at the point when the S&P 500 dropped 10% or more, on average the US ISM index was at 51.6 (indicating economic expansion), trailing EPS growth was on average running at 7% and forward growth expectations were at 11%.
The point being that at the top, economic fundamentals always look strong and this is why interest rates are going up. It is interest rates, not growth, that is the concern.
Lapthorne then shifts focus, and echoes an analysis conducted by Goldman's David Kostin last Friday...
... namely how long it takes to recover from your index price loss.
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