March
2007
Understanding the Stock Market
The Stock Market is currently going through some significant hickups. I don’t quite understand why … started with something in China, dropped a little here, then bounced back, until the government decided to go after some subprime lenders, and on and on it goes. It has little to do with performance of any one company, it’s like a whole ocean shifted. Every day there’s a full page article stating that it went up or down because of X or Y.
Of course we always get the results afterwards, how do you prepare for that.
Professional Investors will say “Fundamentals,” but that would apply reason to this market, and I don’t have any sign that this is reasonable. Reasons would be predictable laws, rules that everybody is playing by. But if people are playing with a different set of rules from your, your fundamentals won’t get you anywhere. Maybe the stockmarket is really more about sociology rather than economics, emotions rather than understanding, luck rather than prediction.
The attached article may serve as an illustration. I’m not quoting the whole thing, just a couple of statements. I like the:
“The fundamentals don’t matter. What ultimately does matter is what the Fed is likely to do,” he said.
“It’s an emotional, sentiment-driven market. Anxiety is driving the market. It’s hard to come to any conclusion that the fundamental value of the market is changed from three to four weeks ago.”
I read somewhere a long time ago that Steve Wozniak, the Apple Founder, long ago got out of the stockmarket and just invested in guaranteed rates of return. Don’t know if I believe that, but with the money he made, he should make plenty even at 2% a year. For the rest of us knowing that our retirement is swept along on a giant wave of mass hysteria, it’s a bumpy ride.
(Original found here.)
Stocks Slump as Hopes for Rate Cut Fall
By TIM PARADIS
AP Business Writer
Published March 16, 2007, 11:16 PM CDTNEW YORK — Wall Street slumped Friday after another reading on inflation deflated hopes the Federal Reserve will start moving toward an interest rate cut when it meets next week. The major indexes suffered moderate losses for the week.
The inflation reading was the second in as many days that upended expectations that the Fed might consider lowering rates as the economy gives off signs of slowing. The sentiment overshadowed a stronger-than-expected increase in industrial production.
“The market is dealing with the softer economic data that we’re seeing and trying to reconcile that with the somewhat stiff inflation data,” said Marie Schofield, fixed income strategist and portfolio manager at Columbia Management Group.
…
Inflation concerns remained entrenched on Wall Street Friday. The Labor Department’s report that its Consumer Price Index rose by 0.4 percent in February renewed some of the concerns that dogged stocks on Thursday. Wall Street had expected an increase of 0.3 percent. The rise was double that of January and the largest rise since a similar increase in December. Rising costs for gasoline, food and citrus crops helped boost prices.
However, the important core figure, which excludes often volatile food and energy prices, didn’t surprise Wall Street. It rose 0.2 percent as expected.
The Federal Reserve reported industrial production increased 1 percent in February, well above the 0.3 percent increase analysts expected.
The consumer inflation figures came one day after a key measure of inflation at the wholesale level took Wall Street by surprise with a higher-than-expected reading. Wall Street overcame the unwelcome Producer Price Index reading Thursday to move moderately higher as it focused on further corporate takeover news.
The inflation readings draw Wall Street’s attention because investors are concerned that higher prices will make it harder for the Fed to justify a reduction in short-term interest rates, even if such a move could help stave off a further slowdown in the economy. The latest inflation readings carry particular significance as the Fed begins a two-day meeting on Tuesday. The central bank has left interest rates unchanged at its last five meetings, interrupting a string of 17 straight increases that began in 2004.
Joe Balestrino, a portfolio manager at Federated Investors Inc., contends investors are viewing economic data through the eyes of the Fed and not as much for what it says about the economy.
“The fundamentals don’t matter. What ultimately does matter is what the Fed is likely to do,” he said.
“It’s an emotional, sentiment-driven market. Anxiety is driving the market. It’s hard to come to any conclusion that the fundamental value of the market is changed from three to four weeks ago.”
Sentiment took a jarring nosedive on Feb. 27 when a worldwide selloff raced through the markets and sent the Dow industrials down 416 points that day. Since then Wall Street has been trying to regain its footing and ascertain whether stocks had found a new bottom.
…