Right here, right now, the S&P 500, the Dow, and the Nasdaq Composite are hanging just below their all-time highs. This week, the market has shown that it is concerned about the economic-data news, but it is also betting on the Fed holding off on raising rates. In short, the market is in a holding pattern, not preparing for a fire sale. The VIX confirms this, as it sits in the 12-13 zone.
Funny thing about the market, the current of energy that runs underneath it is negative. This is opposite of the electricity that powers our lives – the black wire, the one with the juice, is positive. The reason the market runs contrary to the laws of Nature is that the market R us. Humans are trading and humans are fear-based creatures, and fear is often an irrational response. Whereas the forces of the Universe are predictable, humans are not so much.
- With the earnings season drawing to a close, S&P 500 members are now on track to deliver income growth of 0.2 percent in the first quarter, compared with projections for a 5.8 percent decline as recently as March.
This is why the analysts, economists, and talking heads are continually wrong about market movement in general, and particular markets, specifically. You see, fear colors the rational mind, and it is the breathless media that drives the fear. And when it comes right down to it, many of those with a list of letters behind their name, or a resume filled with top-of-the-food chain financial names are the ones pushing the fear.
Maybe they do it because they have an agenda, or maybe they have so much information they get confused, or, maybe, connecting all the dots is a fear-based exercise. It makes me think about the famous Rorschach Test in psychology.
Don’t misunderstand me, the vast majority of folks doing market analyses are good people with good intentions, but, in the end, they are no different from the vast majority, the folks who day in and day out go to work, pay their bills, and worry about the future.
- The University of Michigan preliminary index of sentiment dropped to 88.6, the lowest since October, from 95.9 in April. The 7.3 point decrease was the largest since December 2012. The outcome was lower than the lowest estimate of 68 economists surveyed by Bloomberg.
And one big reason the US consumer, as well as the market watchers, worry about the future is the breathless media is a capitalistic enterprise running full speed, 24 hours per day, seven days per week, on more channels, web sites, stations, and newsstands than there are dots on a Rorschach Test.
- News that the world’s largest economy stalled last quarter shook Americans’ outlook, while the tick up in fuel costs since early March also contributed to the gloomier perceptions.
No wonder consumer sentiment is down and savings are up. The constant negative news flow since the end of January is enough to have everyone worried about the future. Folks took the money from lower fuel prices and put it in the bank because all they have heard for four months is how bad things are and the pundit crowd is simply echoing that fear each and every time another not-so-good, but not-so-bad piece of data comes out.
- While slightly lower than in the prior month, households still held relatively upbeat views on incomes, a sign spending will be sustained.
There is a reason folks have the “upbeat” attitude about incomes – lots of people are working and people are making more money. That is real. They see and feel that every day. All that negative nonsense we heard for years about the work force is now countered by the facts – 5.4% unemployment and wages slowly but steadily rising.
Yet, running counter to all of what I just wrote is this fact – the market is still hanging around just below all-time highs. This does not seem to be fear, although it is clear fear is running just underneath the positive. Hence, the market is wary.
Yes, the market is acting like it is not afraid, it is acting as if the economic news of late is not bothersome, that the consumer sentiment report that came out today is not a problem, that the talk of an overvalued market is not an issue, and that the Feds will hold off raising rates.
All of the above is part and parcel of market thinking, which R us, but more than any other reason the market is still at these lofty heights is that companies are still making money at a decent rate, so the ROI of the market is good, even if it the P/E ratio is higher than the norm, the economic data is slightly off, and the consumer has fallen prey to the overcharged breathless media.
Trade in the day; invest in your life …
