The idea goes: If the S&P falls below 1,040, then we’re likely to revisit the lows below 700. Who knows if this widely cited “if, then” conditional probability is valid? We may find out soon enough. When universally accepted technical support levels are breached, we tend to see heavy bouts of “self-fulfilling prophecy”-based selling.
Regardless of how the technical conditions play out, there’s still a big difference between current stock prices and the prices that most value investors are willing to pay to assume the risks of owning stocks. The word “risk” is key. In periods of heightened economic and political risk, investors demand higher risk premiums to hold stocks. A simpler way of stating “higher risk premiums” is “lower stock prices.”
These risks include the speed at which politicians are driving national economies down Friedrich Hayek’s proverbial “road to serfdom.”