What's going on?

After months of steady gains, US stocks are exhibiting signs of nervousness ahead of earnings season, which kicks off tomorrow.

What does this mean?

In the four months since November�s presidential election, US stocks kept ratcheting up new record highs. But the story over the past month or so has been a bit different. The failure to pass Obamacare reform through the House of Representatives showed investors that even with Republicans controlling the House, Senate and the White House, passing legislation is far from a sure thing. So investors are now more squeamish over the prospects for tax reform, which could provide a big boost to companies� profits (and therefore, likely, stock prices).


Meanwhile, concerns have emerged over the health of the economy: despite suggestions earlier this year that the economy was picking up steam, data now being released paints a far less rosy picture.

Why should I care?

For the markets: Stocks have had a very good run.

US stocks are up about 10% over the past six months. Anytime a market moves up that sharply, it�s pretty natural for a pullback to occur: markets rarely move up or down in a straight line. Nevertheless, for stock prices to remain buoyant, many investors think we will need to see some combination of tax reform, an improving economy and/or rising corporate profits.


The bigger picture: Investors are increasingly looking elsewhere for returns.

US stocks, in US dollar terms, have gone up less than stocks in other major markets this year (including stocks in Europe, Japan and �emerging markets�). That�s partly because US stocks have performed much better in recent years: other countries are playing catch up. It�s probably also because economies in other parts of the world now appear to be growing moderately more quickly than the US economy. Perhaps unsurprisingly, this is leading many US investors to increase their investments abroad.