These days the mainstream financial news excuse for the market’s gloom and doom is based on the current corporate earning reports. A few months ago it was the European sovereign debt and the slowed economy in China. What you see in the market these days is a typical emotional reaction to news of supposedly negative earnings in the U.S., complicated by the U.S. election unease.

The significance of a six-week downtrend for risk assets has been to increase flock investor’s net outflows from stock mutual funds. It also causes the media to be very negative. Overall, it creates an environment in which very few investors are expecting the S&P 500 index to reach a new all-time high.

There is now a notable disparity between defensive stocks and cyclical ones. The inevitable resolution of this historically wide disparity is a compelling investment opportunity. Our research indicates that we will indeed revert to toward the mean and beyond.

One of the advantages of our approach is that we tend to make money in our ETF long positions, even when the market is not going our way. This is because we buy at the low end of the cycle so our risk is low. Then we exercise patience and sell when we want to sell and not into panic.

We are in the final stages of a multi-year bull market for most risk assets

Conclusion: do not let recent events skew your perception of the future. The big picture will rarely change significantly, but the details of price and time will usually require periodic adjustment.