This Week’s Message: The Crowd

Two big rallies this morning, the first one charted below should come as no surprise; recall Monday’s blog post with “Strong Odds Of A Near-Term Rally” in the title.

S&P 500, one-week hourly chart:

Yes, of course it was all about trade news; sources said that the scheduled tariff increase on 12/15 won’t happen, and that there’ll even be a rollback of existing tariffs.

The second rally this morning was a surprise to many, but not necessarily to us; as we’ve been showing you signs in our data that suggest that the labor market could begin to see some stress going into next year, which would be an ominous signal for stocks.

Weekly jobless claims:

As frustrating as it may be, clients, to have your portfolio hedged against a big move lower, while the market moves bigly higher, we simply have to remind ourselves that, at the end of the day, we’re investors, not traders: We strive for big gains when conditions support such striving, we protect against big losses when conditions support such protecting; accepting that the market can indeed rally (on stimulus and hyperbole) — without our full participation — well beyond what the fundamentals would dictate. Otherwise we’d just live and die with the crowd. 

And, believe me, having myself, over the course of the past 35 years, wrestled with — and ultimately found peace in — the markets, there are times when we absolutely must steer clear of the crowd.

From Charles Mckay’s 1841 classic, and must-read!, Extraordinary Popular Delusions and the Madness of Crowds

“Truth . . . and if mine eyes can bear its blaze, and trace its symmetries, measure its distance, and its advent wait, I am no prophet – I but calculate.”  

“We find that whole communities suddenly fix their minds upon one object and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”

“Every age has its peculiar folly: Some scheme, project, or fantasy into which it plunges, spurred on by the love of gain, the necessity of excitement, or the force of imitation.”

And from Gustov Le Bon’s 1895 classic, and must-read!, The Crowd; A Study of the Popular Mind:

“We see, then, that the disappearance of the conscious personality, the predominance of the unconscious personality, the turning by means of suggestion and contagion of feelings and ideas in an identical direction, the tendency to immediately transform the suggested ideas into acts; these, we see, are the principal characteristics of the individual forming part of a crowd. He is no longer himself, but has become an automaton who has ceased to be guided by his will.”

Of all the books I’ve read on human action, markets and economies over the years, the above two rank right up there with Reminiscences of a Stock Operator

Have a great weekend!


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