Stocks Take Hit as Bond Selloff Saps Risk Appetite

• The market has exited the 'Great Moderation' era and entered a 'Temperamental Era,' where bond yields and stock prices move inversely, driven by inflation risks.
• Blowout Q2 earnings, with over 50% growth, are not sustainable long-term and analysts are not extrapolating this trend.
• The current level of cash on the sidelines (7+ trillion in money market funds) represents 10-12% of total stock market cap, significantly less 'firepower' than during the 2009 market bottom (60%+).
• Investors are shortening time horizons, leading to a blurring of lines between investing and gambling; longer-term strategic asset allocation is recommended.

Liz Ann Sonders discusses a shift from the 'Great Moderation' to a 'Temperamental Era,' characterized by an inverse relationship between bond yields and stock prices due to inflation. She notes that while Q2 earnings were strong, their parabolic ascent is unsustainable. Investors are shortening time horizons, blurring the lines between investing and gambling, and diversification needs to be more creative.