Another brutal market day. Three brief observations:
1) stocks are trading on fear, so by definition much of this action is irrational; bonds now look extremely expensive and stocks look cheap on a relative basis. Companies are set for a slowdown: they have cut costs, not hired anyone, and have huge amounts of cash.
I'll give you an example: look at Starbucks . They are talking about mid-single digit same store sales next year...how? They're in much better shape than 3 years ago. They have gotten out of bad stores (closed 475 stores in 2008, 57 last year, 34 this year...out of 6,600 stores in the U.S.). They have increased their international presence, increased their direct to consumer business with K Cups, taken out a lot of costs...they can clearly weather a slowdown better. All this, with higher commodity costs (coffee prices went up).
2) fear can predominate for a short while, but ultimately, stocks trade on a multiple of earnings.