In today’s Money Morning…the first real sell-off in five months…humans aren’t rational beings; we’re quivering, nervous little balls of emotion…the RBA’s biggest blunder so far…and more…
It’s been a while, but overnight saw the first good old-fashioned sell-off in stock markets for some time. According to Bloomberg, the 1% decline in the S&P 500 is the biggest fall since October last year.
For some completely useless hindsight analysis, let’s see what Bloomberg could dredge up:
‘“With the health-care morass, the Trump effect is taking a little bit of a backseat in peoples’ minds,” said Steve Sosnick, an equity risk manager at Timber Hill LLC, the market-making unit of Greenwich, Connecticut-based Interactive Brokers Group Inc. “It feels like the market needs another catalyst. The catalysts had been coming largely from the Fed and the Trump effect. Something is spooking people.”’
Something is spooking people? Really? I don’t see much fear in the chart of the S&P 500, below:
Click to enlarge
I see a steadily rising market that corrects from time to time.
The yellow and blue lines you can see in the chart are the 50 and 100 day moving averages. They provide an indication of the trend of the market. When prices move well above these moving averages, it increases the chances of a correction.
This is simply something that brings the market back into balance.
If Bloomberg were to call me up and ask why the market sold off heavily yesterday, I would say that I have no idea. But before letting the silence linger and then hanging up (or being hung up on), I would add that the selling gathered pace because the market at that point was simply stretched to the upside.
I would quickly add that there weren’t enough new buyers to come in and push the market higher. And there were plenty of nervous holders who were keen to lock in profits on any decent excuse, in this case something about Trump and healthcare.
In other words, I would confidently round off by saying there were more people wanting to sell than to buy yesterday, and for the market to balance these buyers and sellers, prices fell.
Which is why Bloomberg will never give me a call. But I’m OK with that…
But keep in mind that the justification or rationale for a market falling (or rising) is always based on hindsight analysis, and is therefore useless.
Humans aren’t rational beings, despite what the textbooks say. We’re quivering, nervous little balls of emotion. In order to soothe our fears, we engage in hindsight analysis to provide a comforting narrative.
Who are you going to believe? The suited up guy (or gal) on TV confidently telling you stocks dived because of nervousness about Trump’s healthcare plans? Or the semi-shaven, shoddily dressed amateur (me) shrugging his shoulders saying he doesn’t really know, except that more people wanted to sell than to buy?
I know exactly who you’d believe.
It’s all about emotion and psychology. It’s why bankers and fund managers wear finely cut suits (they’re mostly men) when selling their wares. And real estate agents. There’s a lot of information conveyed in a suit. It stops us thinking about what’s really being said, and lulls us into a false sense of security about the person.
But let’s move on before I bore you any more. Suffice to say this is just what markets do. They go up a bit, and then down a bit. But over time, they go up more than down.
From the Port Phillip Publishing Library
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