The Stock Market Is Whistling In The Dark

The S&P 500 has declined 7.5% from its all-time high over the past month, yet equity valuations remain more than 50% above their long-term average. This muted drawdown has occurred despite an unusually severe oil, natural gas, and food price shock hitting the US and global economies. The combination of elevated commodity-driven inflationary pressure and stretched valuations raises material downside risk if the shock persists or feeds through to earnings.

Analysis

The S&P 500 has declined 7.5% from its all-time high over the past month, yet equity valuations remain more than 50% above their long-term average. This muted drawdown has occurred despite an unusually severe oil, natural gas, and food price shock hitting the US and global economies. The combination of elevated commodity-driven inflationary pressure and stretched valuations raises material downside risk if the shock persists or feeds through to earnings.