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John Authers

The Stock Market Still Has Another Shoe to Drop

The froth has come off valuations. What of profits though?

There’s another one to come.

There’s another one to come.

Photographer: Kevin C. Cox/Getty Images North America

Where do we go from here? It’s difficult to write much about markets with a hugely significant announcement from the Federal Reserve to come within 24 hours. But I’ll try to work out whether it could make sense to buy stocks at this point.

A neat demonstration of just why this situation is different from all the other crises and moments of financial stress since the turn of the millennium is in this chart from the latest Bank of America Corp. survey of global fund managers. This is now a bear market by any sensible definition, and yet a strong majority of big investors expect rates to be higher a year from now. At all previous tough moments for the stock market in this century, investors overwhelmingly believed that rates were coming down. The Federal Reserve and the bond market aren’t going to arrive like the cavalry this time: