Over-Analyzing Market Behavior

January 5, 2009

Because it’s expected of them, market experts feel compelled to explain every wiggle in price.  But sometimes no informed answer really exists, other than it’s the nature of market prices to bounce around even as they trend from level to level.  Factors are rarely aligned entirely in one direction or the other, so a plausible explanation can be found for whatever the market does.  Lately when stocks were rising, the pundits have cited the expected stimulus from monetary and fiscal support, and ongoing very depressed profits have purportedly been the driving force on other days when equities were softening.  Both factors are real and at play every day.  Taken literally, one might conclude that investors are bipolar, oscillating between euphoria and despair with minor or no discernible provocation.  In fact, markets are only doing what comes naturally, exhibiting variance around a trend, and it is the filter of pundit-speak that paints a picture of a constantly shifting investor psychology.

The question remains, how much farther do stocks decline if at all?  If a sustained economic recovery begins around midyear, it is not unreasonable to expect a near-term upturn. Equity market troughs in 3Q32 and 3Q82 foreshadowed real economic upturns about a half year later.  However, if the entire 2009 turns out to be a bust, last year’s record-breaking market declines probably are not over.  The word “sustained” is an operative one.  Tax rebates in the U.S. last spring held up consumption only temporarily and indeed set up a sharper and more abrupt collapse in of household spending in the second half of the year.  So far, the world recession has behaved like a antibiotic-resistant bacteria.  Officials around the world have tried a number of tricks over the past year, some quite innovative, but deflationary pressures still have plenty of momentum.  It’s easy to be pessimistic about this whole year and will remain so until more data prove to be better than forecast rather than worse. Today’s release U.S. construction spending figures were a pleasant surprise but no more than that.


One Response to “Over-Analyzing Market Behavior”

  1. Stephan Shugart says:

    I feel better about the future economy in 2009 than the last 4 months of 2008. I feel as though I lived through a war. I cannot forget the helplessness I experienced watching my investments fall. Now the world can deal with recession and or depression both of which is very familar and predictable. 2008 was the year the street brought hell and high water into my life, I feel investors such as myself were cheated and laid waste for nothing more than greedy bankers and politicans. And to top it all we the people are expected to pull the weight and bail out the culprits. Everyone feels frustration at the fact that no one has been charged and jailed for the billions that were esconded. Now all that is left is to sit back and hope things become normal again.