Wouldn’t it be great if…
Wouldn’t it be great if the talking heads on TV explained what’s really driving the markets?
For example, two weeks ago the market had a big drop due to the release of a transcript of a recent federal Reserve meeting where the members talked about reducing money printing later this year. In addition, there was growing fears of the Delta Covid variant starting to hurt the world’s economy, and evidence that the US economy was slowing faster than expected after the last round of stimulus.
However, only a week or two later, the stock market rebounded from the big hit and reached record highs. What happened to the earlier problems? The reality is that nothing happened. There was no news that the Fed had changed its mind about reducing money printing this year. In fact, Fed Chairman Powell confirmed it. Nothing changed with Covid, the world economy or the US economy.
What happened is that the stock market rebounded for no reason at all.
Wouldn’t it be great if the talking heads on TV just told it like it is? For example:
CNBC Interviewer: So, Mr. Talking Head, why are we seeing such a big rebound so quickly from last week’s downturn due to fears of the Fed tapering and slower growth?
Mr. Talking Head: Well, I think a lot of it has to do with the fact that the market likes to go up. If you look at it historically over the last 18 months, it’s pretty clear that when the market drops, for whatever reason, it rebounds. And it rebounds pretty quickly.
CNBC Interviewer: What about the market’s concern over the Fed tapering this year? It was actually confirmed by Fed Chairman Jerome Powell. So, it isn’t just fear anymore, it’s reality.
Mr. Talking Head: Most likely the market has simply chosen to ignore bad news from the Fed because it likes to go up. It also knows very well from a historical perspective that, over the last 18 months, the Fed has been much more supportive of the stock market than even before. So, thinking the Fed would try to hurt the market is like thinking someone will try to burn their house down. It’s not likely.
Also, the market probably wasn’t that worried about the Fed, or growth or Covid two weeks ago. Those were simply the best excuses that other talking heads could come up with for why the market fell. It’s hard to know exactly why the market goes up or down any given week. What we do know for sure is that it likes to go up.
CNBC Interviewer: Isn’t that overly simple? Isn’t the market smarter than that?
Mr. Talking Head: It is simple, but it also based on a smart assessment of this market. This market has to go up or it will go down. The current market is much like a shark. It can’t stop swimming, or it will drown.
That’s a good reason for the market to ignore bad news and to keep going up. Plus, there’s no shortage of monetary and psychological support from everyone else on Wall Street, as well as the Fed, Congress and the President.
None of these people are that smart about analyzing the stock market, but they are smart enough to know up is good and down is real bad.