WSJ – “Stocks get cheaper”

Not a big  deal. Total drop from the high is 8.5%. More a return to normalcy in the capital markets (interest rates going up; borrowing more expensive). "Relative to earnings, the S&P 500 is cheaper than it was a year ago."

It happens. The Eagles winning a Super Bowl is no doubt a shocking event. It’s also possible that Americans are already sick of winning. A more plausible explanation is that finally—ten years after the financial crisis—the U.S. is returning to a real economy where markets fluctuate, private risk-taking leads to growth, interest rates don’t stay at rock-bottom levels and every bump in the financial road is not met with a federal intervention. This is progress.

Ironically, stocks are falling because the economic news is better than expected. Rising wages and estimates of faster economic growth have investors concerned that to contain inflation the Federal Reserve will feel compelled to raise interest rates faster than expected. “It’s the first time in a decade we will be seeing rising rates due to economic prosperity,” says one hedge funder. “That’s got to take a bit of adjustment.”

But it’s an adjustment that should be welcomed. Certainly savers who’ve been suffering for years can easily welcome the return of a decent return on their money. As for stock investors, the hedgie now sees less frothy markets that rose sharply in January and have now given back their gains.

And of course markets rose sharply last year, driven by rising corporate earnings and positive signals from Washington culminating in major tax reform. Now stocks are not just cheaper than they were last week. Relative to earnings, the S&P 500 is cheaper than it was a year ago.