The market got hammered last week. The broad S&P was down over 3 percent (3.27% to be exact) and is down 5.7% on the year. While I think the market may zig up a little it will probably zag down a lot more. Here's why ...

Stocks are still way, way too expensive. As Jeremy Grantham astutely points out in hs excellent (and free!) commentary corporate profit margins are at an all time high (over 7% I believe). They will likely revert back to a long term average of about 5%. This will shave a hefty chunk off the S&P 500 earnings. If PE ratios revert to a long term average of 16 (from the current 19 and change) the index will lose more pounds and inches.

Grantham pegs fair value for the S&P 500 at around 725 - so there's still plenty of room to fall.

I've been putting a chunk of my 401k money in a money market for the last few months (the rest in conservative actively managed funds) and I don't regret it one bit. Unlike a year a go cash now yields more than stocks (S&P yield is about 1.8%) and as Fed tightening continues cash will look better and better.

-fg mortgage calculator