China lighted the match that started a fire in world markets that to date has wiped out trillions in shareholder capital. The fire is still burning, spreading fear the recent correction could morph into a long, protracted bear market.
History has taught us that anything is possible, but I see two reasons why the next leg of the bull market might be just around the corner.
In the end, earnings determine equity prices and even more critical, the direction of those earnings. Valuation is important, but combined with economic growth, earnings are an unstoppable catalyst to drive share prices higher.
Unfortunately for the last several months the opposite has been true.
Market valuations have been stretched and estimate revisions have been to the downside. While there are many companies pushing estimates higher, the indexes are heavily skewed to large multinationals that have exposure to the dollar and of course the slowdown in the second largest economy, China.