Macroscope | The trade war did not trigger stock market volatility, anxiety over peaking corporate earnings did
- Kerry Craig says the cause of the jitters in global equity markets is not easy to pinpoint, but fears of an easing in corporate earnings growth is a big factor
- The sell-off in Asian equities is an opportunity for long-term investors
The brutal sell-off has tested investors’ resolve, challenging the durability of the nine-year-old bull market. Is this correction the beginning of something more sinister – a bear market? Or can equities recover from the overload of anxiety and macroeconomic risks to rally?
The spike in equity market volatility during October is troubling because it’s been difficult to identify a specific cause. The situation is much like a television medical drama in which the patient presents a multitude of seemingly unrelated symptoms, leaving doctors searching for the right diagnosis.
Watch: The origins and impact of the US-China trade war
So why are markets suddenly more concerned with these factors? The answer is earnings. Against the overhang of increasingly worrying macro headwinds, US corporate earnings strength has proven to be an effective windbreak. Investors may have felt they could deal with all the risks as long as corporate America was still delivering on the promise of earnings. Even here the current US earnings season doesn’t appear to be a big disappointment, on paper at least.