“Resistance is futile.” Don’t go there! I am not a Trekkie, but I have seen all the TV episodes and all the movies (I think), so I am familiar with the Borg, the space folk who take over the collective minds of other civilizations.
Watching the market this morning, the Borg and their motto popped into my head (Could it be? No, no way!). Anyway, it struck me that the market can go here and go there on this and that from the breathless media, but, in the end, resistance is futile – economic and market fundamentals will take over the market.
- Truth be told, the Federal Reserve’s meeting minutes never actually change what’s going to happen with stocks. The media suggests there’s a cause-and-effect in play, but in almost all cases the gist of the Fed’s outlook is already accurately priced into stocks.
As example of the above notion, the Fed officially ended its $1.6 trillion dollar bond-buying program yesterday. True, the market dropped, technically speaking, but, most took yesterday as a flat day, relative to recent market movement and relative to the expected negative reaction to the Fed’s closing out its program. In essence, the market took yesterday’s much ballyhooed and much discussed big, scary “event” in stride and shrugged its shoulders.
Today we have some stellar economic news and the market is resisting it, as it has been trying to resist reality for the last couple of months. Actually, now that I think about this metaphor, the market hasn’t been resisting reality as much as the big “brains” in the Wall St., outfit have been resisting reality.
- The economy in the U.S. expanded more than forecast in the third quarter [3.5%], capping its strongest six months in more than a decade. It marked the strongest back-to-back readings since the last six months of 2003.
The first part of the above is important to my position, but the latter makes the point that the suppliers of data to the big “brains” on Wall St. are all over the map when it comes to predicting the economic future.
- Forecasts in the Bloomberg survey of economists ranged from 2.1 percent to 4 percent.
It’s not that economists are not smart – most are – it is that economics is an art, not a science, so certainty has a small role to play in the forecasting of the economy; yet, the breathless media puts front and center the celebrity analysts and the not-so-smart economists who are certain of their predictions on the talking head circuit, and voila, we have a market going bonkers when it should just be chillaxin’.
- Growing oil production is limiting imports and contributing to a pickup in manufacturing, allowing the economy to overcome slowing growth in overseas markets from Europe to China. At the same time, job gains and cheaper gasoline are giving American consumers the confidence and the means to spend, brightening the outlook for the holiday-shopping season.
The market can behave erratically only for so long, yet that erraticism can break you, if you do not understand that resistance is futile. Remember the words of John Maynard Keynes (a smart economist), “The market can stay irrational longer than you can remain solvent.”
Understand that when the underlying economic and market fundamentals (earnings) are solid, the market might succumb to the breathless media filling the voids with nonsense and become erratic, but, in the end, resistance to positive economic fundamentals and good earnings is futile.
- And with consumer confidence rising, that is a clear indicator that consumers are feeling better about the economy.”
- The four-week average, a less volatile measure than the weekly figures, declined to 281,000, the fewest since May 2000.
And so, here we have it. A day after the Fed quits one of its two programs for supporting a broken economy, the market is not tanking, which is the opposite of the breathless media’s years-long mantra.
Now, the market could turn around today. Clearly, there is still doubt in the air. The S&P 500, the Russell 2000, the S&P Mid-Cap, and the NASDAQ are not buying into the Dow “rally.” The VIX, however, is falling back from an earlier rush up.
Yet, if it does turn around, it won’t stay down for long. Money is flowing again as confidence rebounds.
- Investors in U.S.-based mutual funds poured more than $6 billion into stock funds in the week ended Oct. 22 due to demand for cheaper U.S. stocks following a market pullback, data from the Investment Company Institute showed on Wednesday.
Yup, buy the dip and stay in the game because, as we all know, resisting the Borg collective is futile.
Trade in the day; invest in your life …
