While most market participants are well aware of the broad risk-on / risk-off tendency in asset markets over the course of the last few years; this year - most notably as the facts of companies' earnings came under scrutiny in the last quarter - we saw a new pattern emerge. As equity markets levitated on hope of another injection of central bank largesse, so reality was suspended and valuation multiples simply didn't matter as "it's all about the future", but as Q3 Earnings Season began and exhibited its worst tendencies in years, starkly highlighting 'what lies beneath' so stocks traded in a 'Reality-On' mode. This then rapidly disappeared from view as Q3 earnings season ended and 'Reality-Off' mode was re-engaged. We can only assume, given GE's warning [4], how bad Q4 will be and the question then remains, will stocks re-engage 'reality-on' and retest reality lows?
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Chart: Bloomberg