It must have been a good weekend for the market. Up and at ‘em this morning. Right out of the gate and into the green with gusto. The market’s “in your face, Bears” attitude has brought the S&P 500 back up over 1700. Imagine that! Just two short weeks ago, the analysts featured on the breathless media channel were telling us to expect a major correction, that the S&P 500 would test lows in the 1580 range.
- Global equities were mostly higher at the time of writing following Larry Summers’ exit from consideration as the next Fed chief.
The above is the predominant reason given for the huge push in the market today. Could it really be that the market thought of Mr. Summers as bad? What is/was it about the man that had the market worried? After all, he is a financial insider, a man who has fought for financial interests in America.
To a degree, Mr. Summer’s withdrawal moved the market, but only because the market wants to go up. Big-money investors want to get their money working, so they are piling in now. How long they will continue to stock up is an open question, but, at the moment, they don’t seem to be fearing much, not even the looming threat of political whackos shutting down the US government.
Speaking of big-money investors … Often, the financial media quotes the National Association of Active Investment Managers (NAAIM) survey as a metric for ascertaining near-term market direction. So, how accurate is the survey in predicting market near-term movement? Let’s take a look at a two-year chart to see the answer.
As the chart shows, the S&P 500 has been remarkably stable for two years and the NAAIM members have not been so steady. Volatility is a word that best describes the NAAIM. Relating to the question, though, one can conclude three things from this chart.
First, the investment power of the NAAIM is not enough to move the market in the direction of its beliefs. Second, the breathless media affects NAAIM members, as it does most everyone else, and, third, using the NAAIM surveys as a metric for predicting near-term market movement is, well, not satisfactory. The market can and does move on news in the short term, which brings me to the most interesting part of the chart – the huge dip in the market in August. The NAAIM members were looking quite bullish when that happened.
The fact is that sudden declines in the market usually need a fearful reason, such as blowing up Syria, QE tapering, or politicos threatening government shutdown. As to the NAAIM members, I suspect they are all are more forward looking. Their time horizon is much larger than the average trader’s. Even though they might be bullish today (for the longer term), they still can get caught off guard by traders pushing around a low-volume market, such as the one we had in August.
The take-away from my little “chart” analysis is that the market is the best metric for predicting longer-term market movement. Just look at the S&P 500 for the last two years. Aside from the ugly blip in this past August, it has remained stable. That should tell you something – both the market and economic fundamentals are sound enough to keep the market moving forward. Oh, and one more thing. The fundamentals are the best predictors of longer-term market movement.
Trade in the day; Invest in your life …
