Quote of the Day: Sentiment and Emotion Dominate

As you may have noticed, I’ve been making it a point to acknowledge the fact that while my macro assessment is the least optimistic it’s been since the last recession, the stock market may absolutely continue its march higher into the foreseeable future — despite the fundamentals.

Bloomberg’s Mark Cudmore essentially echoes that sentiment — as well as my note from last Thursday — in his macro note yesterday titled Coronavirus Won’t Restrain Global Stocks for Long.

Here’s from my Thursday note:

“Look for further outsized moves in both directions; make no mistake, any good news related to the virus will see the bulls swoop in in a hurry.”

Speaking of “both directions”, and bulls swooping in, the next day saw a 600-pt decline in the Dow, and if today’s cash session reflects the action in equity futures this morning the Dow will have those 600 back by the end of the day. In terms of the catalyst, however, while there’s been news of promising treatments and vaccines, I think the snap-back rally has more to do with massive nightly liquidity injections by the Chinese central bank. 

Here from Cudmore’s yesterday note:  emphasis mine…

“It’s a bullish sign for global stocks that facts have taken a back seat in much of the market “analysis” of how to react to the coronavirus.”

“It’s amazing how little nuance or rigor has been brought to bear on analyzing the impact from the virus. The excellent strategy notes that are exceptions to that statement are in a small minority.”

“The vast majority of street views have either rushed to advocate buying the dip based on highly flawed comparisons to SARS or stirred up panic based on reading one article and seeing a chart on social media.”

“…it’s not just in relation to the science — the conversation around other fundamental inputs has similarly been devoid of any subtlety. Apparently either stocks will bounce quickly because central banks always have your back, or this is the start of a great collapse because they were horribly overvalued already. Never mind strong earnings, subdued economic data or any other news flow.”

“Sentiment and emotion clearly dominate all other drivers right now. Whether you attribute this to the rise of passive investing or some other factor, it’s important to be aware of what kind of game everyone is playing.”

“…proper economic analysis involves hard data and figures. That sort of stuff doesn’t look overly relevant to traders in this market.”

While, clearly, the last two snips sum up present sentiment, proper analysis of the data is indeed the right way to approach the market, and history suggests that those who discount its relevance will in all likelihood live to regret it…


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