“All courses of action are risky, so prudence is not in avoiding danger (it’s impossible), but calculating risk and acting decisively.” –  Niccolò Machiavelli, The Prince

For much of the past few years, U.S. stocks have shrugged off a countless number of risk factors that would normally impact their share prices in an adverse fashion. No earnings? No problem. No revenue growth? That’s fine, as long as you’re buying back tons of your stock. Signs of a potential fraud? No worries, for as long as the stock price is going up it must be fine.

In the short run, investor psychology drives everything in markets. I’ve written a lot this year about the concept of positive sentiment override whereby investors’ positive sentiment bias has overridden any negative news. I’ve argued that since late 2012 we’ve been in the longest sustained period of positive sentiment override in history.

When that period will end is hard to predict but I’m noticing some subtle changes in this prevailing psychology over the past few months.

Earnings

First, on the topic of earnings, there is no better single-stock indicator in my view than Amazon.com. For years Amazon reported declining earnings growth that was not only ignored but often cheered by investors. In the last two quarters, though, things have changed. Amazon reported losses of 27 cents and 95 cents per share and an interesting thing happened. The stock that some have referred to as a “money market” for its persistent advance actually went down. Thus far in 2014 Amazon is down 25%. The importance of this psychological change cannot be understated. If company earnings matter again, it will have broader implications in markets.

Revenues

Next, on the topic of revenue growth, my favorite sentiment indicator is IBM. Sales at IBM have declined for ten consecutive quarters but earnings continue to rise. Why? Massive buybacks have shrunk the number of shares outstanding, boosting earnings per share. Financial Engineering 101.

Over the past few years, IBM has bought back over $40 billion of its own stock and they haveno plans of stopping anytime soon. In the first nine months of this year, IBM has spent more than 100% of its operating cash flow on stock purchases.

This dynamic was largely ignored by markets until the most recent quarter, when shares sold off. On a year-to-date basis, IBM is down over 12%. Similar to Amazon, the importance here cannot be understated given the huge impact share buybacks have had on earnings growth. If investors start to care about revenue growth and are no longer impressed by massive share buybacks, this is likely to have broader implications.

Fraud

Lastly, on topic of fraud, this may be the most important change in sentiment of all. It may come as a surprise to you but investors will ignore or dismiss an outright fraud as long as the share price is going up. There is no better example of this than Herbalife, whose dispute with hedge fund manager Bill Ackman has been highly publicized. Ackman has been alleging that Herbalife is conducting an elaborate Ponzi scheme and if you take the time to examine the body of evidence, it is a compelling case.

Ackman has been lampooned by many over the past year as the stock was rising in the face of his allegations. Importantly, critics were not attacking the merits of his claims, but simply pointing to the share price as an indication that he must be “wrong.” Of course, they were forgetting that markets are far from efficient and that share prices can actually be very wrong in the short-run (see Enron/Worldcom).

There are signs of late that sentiment here may be changing. Herbalife reported a dramatic decline in its earnings this week, leading many to wonder if Ackman’s claims were right all along. On a year-to-date basis, the stock is down nearly 50%.

Changing Psychology

The psychology of the market is slowly changing, reverting back to a more typical environment where investors care about earnings, revenues, and potential fraud in individual stocks. For now, the broad stock indices are still operating in a positive sentiment override environment, where any negative news is cheered as a signal of more global central bank stimulus. But the more individual stocks behave like Amazon, IBM and Herbalife, the higher the odds this changing psychology will spill over into the overall market.