As the Q1 earnings season draws to a close, investors were left with a mixed picture. While the S&P 500 earnings per share (EPS) growth was on average 25% with over three quarters of the companies beating analysts’ estimate, the index edged up only 50bps since the start of the season on April 13th.

The reasons behind this inconsistency are multi-fold:

The divergence between positive economic data and negative policy news is rarely as wide. While the global economy continues to grow at a healthy pace, many of the policy risks we’ve been highlighting have either increased or materialised.  

It is not often that signs of economic strength trigger a market sell-off. Slightly higher than expected wage growth was perceived as presaging significant inflationary pressures, leading to a market correction. Volatility accelerated faster than during the Lehman collapse. Our inboxes were inundated with emails proclaiming various shades of “buy the dip” from banks.