“ . . . the daily machinations of the
stock market are like a tale told by an idiot, full of sound and fury,
signifying nothing.”
John Bogle, founder of Vanguard
One can only be mystified by the ongoing torrent of verbiage about the stock market’s dramatic movements from day to day, much less moment by moment, and how those who would consider themselves investors pay any attention. Yet with straight faces the “experts” maintain nonstop development and regurgitation of essentially useless explanations for whatever is happening on Wall Street at any given time.
Indeed, the latest report on changes in the Consumer
Price Index (CPI) was preceded by the usual variety of baseless forecasts
including one from the esteemed folks at JPMorgan, who let it be known that the
Standard & Poor’s 500 Index would drop 2.5% if that index of inflation came
in between 6.4% and 6.5%. Sure enough,
the number was 6.4%, which showed a further moderation of price advances. But no, the S&P did not fall 2.5% and
even if it did there was no reason to believe the day’s result in any way
supported that forecast.
Similarly, at the start of this month, the consensus
view of economists was that the number of jobs created in January was
187,000. Perhaps the batteries on their
crystal balls needed charging, but the actual number of new jobs turned out to
be nearly triple the estimate. What’s
more, the unemployment rate fell to the lowest level since May, 1969. As has happened many times before: They were way
off target.
Pronouncements such as these are not just to be taken
with a grain of salt. They should be ignored
entirely.
Although there is good reason to expect that the long-term
direction of the stock market is higher, suggestions of what may take place in
the days, weeks or months ahead are utterly worthless. Changes in investor psychology are what drives
the market during shorter spans of time.
Changes in the underlying profitability of the companies that folks invest
in are what drive their shares’ price over longer periods of time.
Economics is another story. Appraisals of that sort may be useful to explain
what has already happened, but the history of forward-looking explanations coming
from that supposed field of expertise is not one that inspires sufficient confidence
to pay much attention.
N. Russell Wayne, CFPÒ
Any questions? Please contact me at nrwayne@soundasset.com
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