The Stock Market Is Not The Economy

Many people have a hard time understanding why I have been so bullish on the market yet so dire in my economic outlook. The answer is quite simple, the stock market is not the economy. This is very hard to believe for people who watch the news or read the paper as every little movement in the stock market is explained by some economic number or some piece of news.

Yesterday, Bloomberg explained the 2%+ rise is the market as a result of the NY Manufacturing Index. Really? If you believe that there is a bridge in NY that I would like to sell you. Nobody really knows why the millions of actors in the stock market made the moves they made yesterday.

There is a correlation between the stock market and the economy but it is quite loose. I have seen the stock market lead the economy and I have seen the economy lead the stock market. I have seen the stock market ignore the economy as it was already priced in.

1 comment:

Anonymous said...

We are holding pretty strong after the break of the 200 day, but not jumping higher. This leads me to believe that the market is not as short as it has been on previous sell-offs (October/February). Seems like we got more explosive up-moves through tech levels on those rallies.

Also may confirm a previous suspicion that many bears covered on the way down (too soon at the time) and are cautiously getting back in on the way back up.

Still, I am impressed by the move up in the last six days. I want to see more time pass (thanks T!) and more of an extension before I weigh in. Two more up days culminating in expiration Friday will leave me very comfortable getting short. Would co-incide with the 50% retrace level I've been hoping for as well (1127 in the mini's).

JD