Where the Stock Market is Heading
The stock market recently hit all-time highs in the S&P and Dow indexes. After a brief shake and wobble in June, that had some people talking about a reversal of this market, it's all up. But it's time to ask yourself what's making the market go up. Is the economy looking so good that this market is seeing a rosy vision of our future? I ask this because the stock market supposedly tells us what business (and therefore the economy) will look like 6 - 12 months ahead. If that's so, things are looking good.
Yet, when you ask people, many if not most believe the market is rising because of the Fed's QE policy. And they have good reason to believe this. After all, the reason for the swoon in June was that Fed chairman Ben Bernanke hinted it might cut back on QE later this year. After seeing the market swoon, Bernanke then made it clear that there would be no cutting back after all. The market promptly turned back up.
So here's an interesting take on all this by always interesting - and quite brilliant - John Hussman:
Speaking of time, if you have 15 - 20 minutes, read Hussman's comments this week in their entirety. They're always good, but this week's comments are particularly insightful. I was particularly taken by his comparison of the rise in stock prices prior to the collapse in 2008. We're following a pattern that does remind one of what happened as the stock market hit its previous high in 2007. After the high, prices moved around, up and down, often giving the impression they would continue their dramatic rise - until they didn't.
Lots of people were caught in the downdraft then. Will the same happen next year?
Yet, when you ask people, many if not most believe the market is rising because of the Fed's QE policy. And they have good reason to believe this. After all, the reason for the swoon in June was that Fed chairman Ben Bernanke hinted it might cut back on QE later this year. After seeing the market swoon, Bernanke then made it clear that there would be no cutting back after all. The market promptly turned back up.
So here's an interesting take on all this by always interesting - and quite brilliant - John Hussman:
QE benefits stocks primarily because investors have come to believe that QE benefits stocks – a belief that is ultimately likely to be added to the long list of extraordinary popular delusions and the madness of crowds. Investing based on expectations of more QE is not an act of analysis or a response to investment merit, but is instead an act of blind faith that borders on superstition.Looks like Hussman's not hot on the market at this time. Of course, that doesn't mean we won't see higher prices in the S&P and the Dow for quite some time.
Speaking of time, if you have 15 - 20 minutes, read Hussman's comments this week in their entirety. They're always good, but this week's comments are particularly insightful. I was particularly taken by his comparison of the rise in stock prices prior to the collapse in 2008. We're following a pattern that does remind one of what happened as the stock market hit its previous high in 2007. After the high, prices moved around, up and down, often giving the impression they would continue their dramatic rise - until they didn't.
Lots of people were caught in the downdraft then. Will the same happen next year?
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