Swift Moves…
August 15, 2026
A few issues back, during that difficult June July period when markets were retreating, I suggested that investors needed to maintain a reasonable perspective in the face of the decline. Investment portfolios have gained so much in the past 3.5 years. Overlooking the overall gain in fortunes due to a shortsighted, unhappy focus on recent activity was unfortunate, unfair, and unnecessarily pessimistic. How could that possibly be a useful attitude?
Recency bias is a powerful influence so investor concerns were certainly understandable. Since then however, there have been a number of favorable developments – the earnings multiple of the overall market declined 10%, from 22 to 20, mitigating somewhat concerns about valuation. The rally has broadened - the top 10 stocks still represent an unusually large percentage of the S&P500 index yet that concentration has also dropped, from 43% to 38%. And earnings have been ripping – stripped of all kinds of extraordinary additional boosts (tariff refunds, gains on investments in private companies, etc.) – earnings this quarter are up more than 25% year over year. Projections call for that pace of gains to sustain at least through the end of 2026 if not beyond. Nice to be lolling about in all that positivity, isn’t it?
Recency bias works both ways, of course. Many market pundits have joined in an upbeat chorus of optimistic predictions for more record setting market results. Historical precedence also confirms that markets are likely to continue to rise. Bullish sentiment, a contrarian indicator (when market optimism is high, investor results are typically worse and vice versa), is not excessive. So why the underlying hint of caution?
The market has been rising despite the ongoing stalemate with Iran, great uncertainty about the long-term impact of the development of artificial intelligence, rising interest rates, some widespread unhappiness in the country. It feels like a sudden change in sentiment could happen at any time. The concern is that when the correction comes (defined as a decline of 10% to 20% from a recent peak), as it always does as part of regular market activity, it could be much swifter and more dramatic this time. Please do not panic.
Recent market activity has been characterized by unusually violent moves and swift changes in sentiment. Microsoft shed over a trillion dollars in value in 6 months, a rather dramatic decline as it is, then gained it back in less than two weeks. There are countless examples of similarly dramatic surges and declines. Violent moves have characterized the market action for some time now. It would be wise to expect a frightening decline. Strap on your big-girl and big-boy pants. Try to mentally prepare yourselves.
If we have been about anything in these missives, it is to maintain a long-term perspective. So even though the action is likely to be more dramatic than usual, remain resolute, tamp down your emotions. The markets will recover. Profitable small and mid-size companies will be less severely impacted. Long-lasting damage is only likely to occur to highly speculative stocks trading on hopes and dreams, not revenues and earnings. Why do you own those anyway?
Switching gears, confirmation bias is another powerful force. I am an avid coffee drinker and have been for years - usually cold with ice and in copious quantities. So I was delighted to read about all the recent notes regarding the health benefits of consuming coffee. The link below details some of the current findings with regard to heart health. There have been other studies showing that it also reduces the likelihood of liver and other cancers. Love that java.