Well that was certainly a quick correction! Score one for the Fed and its liquidity wave. Less than a 3% drop in the S&P 500 was all it took and the buyers came in and have taken us to within 2.5% of the all time highs.
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| Source: StockCharts.com |
Meanwhile, the narrower, but better known Dow Jones Industrial Average has broken out to new highs this morning. The media is all over it. Even the relatively staid Wall Street Journal is in on the act with this little feature in the middle of its online page:
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| Source: Wall Street Journal 3/5/13 |
The Dow's breakout to new highs will undoubtedly attract a lot of attention from both the financial and mainstream media. Given the relentless drumbeat of negative economic news in the media, this may come as quite the shock to many people. It becomes clearer, when you remember that the main driver of media is to sell either ads or subscriptions. Hype, outrageousness and promotion are all part of the playbook to get your attention and sell ads. A good summary is posted on the site Abnormal Returns. Keep this in mind as the media hypes the new highs theme.
In the meantime, as has been noted here and elsewhere, the negative factors affecting the global economy keep piling up (fiscal cliff deal, sequester, gas prices, Italian elections, etc.). Adding to that list, the Shanghai Composite broke through its 50 day moving average. This is important for two reasons. First is that over the last few years, the Shanghai Composite has been somewhat of a leading indicator. Second, it comes in response to China's renewed attempts at cooling its property market. Anything slowing down one of the few engines of world growth is not a positive.
Keep all of this in mind as the you watch the market the next few days. It will be extremely tempting to change your plan or add more risk to your portfolio than intended. In many ways it is natural to get caught up in all of the excitement. The key however, is to stick to whatever long term plan you made in more peaceful times. Remember, purely emotional decision making is the enemy of good investing. In the meantime, stick to the plan, hang ten and enjoy the ride!
Source: Bespoke Investment Group
Keep all of this in mind as the you watch the market the next few days. It will be extremely tempting to change your plan or add more risk to your portfolio than intended. In many ways it is natural to get caught up in all of the excitement. The key however, is to stick to whatever long term plan you made in more peaceful times. Remember, purely emotional decision making is the enemy of good investing. In the meantime, stick to the plan, hang ten and enjoy the ride!
Garrett McNamara riding an approximate 100 foot wave.
Source: Guardian
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