By S. Reity.
The Tale of Two Markets
What we have now is the "Tale of Two Markets". Both plot lines are extremely plausible, but only one can be true. The question is figuring out which it will be.
Tale 1 = Brexit Another Domino Towards Bear Market
The academic research so far says that Brexit is really just an economic issue for Britain and Europe. The spillover to the US economy is infinitesimal. However, Brexit does add to recent uncertainty which can raise risk aversion which can have a tumbling effect for economic data and stock prices. Meaning the Brexit alone will not cause the bear market, it is just another straw that finally leads to breaking the bulls back.
Tale 2 = Thanks for the Buyable Dip
The rational view of Brexit was shared above in that it has virtually no impact on the US economy and thus should be easily shrugged off by investors. So with stock prices dropping 5% it makes for a very attractive entry point for more buying. This is especially true with a focus on the Earnings Yield math where stocks look like a tremendous value versus the paltry 1.5% yield of the 10 Year Treasury.
Many long term investors will note the ability to get a 2.1% dividend yield on the S&P 500 which easily tops that of Treasuries. They can comfortably say to themselves that they will win even if a bear market arrives because 2-5 years down the road the stocks will bounce back and then some.
Some of you will immediately gravitate to one case or the other. But the issue is not about which one you believe in...what truly matters is which will be chosen by the majority of investors. In the end, that will determine which story is fact and which is fiction.
The battle over 2000 is an important chapter in this saga. The bulls are winning at this early stage...yet the battle is far from over.
