Stock Market: Sentiment Overtrumps Reality

(Drivebycuriosity) - Last week the US stock market dropped about 2 %. Depending to whom you listen the fall was caused by "worries about a weak global economy" or by "expectations that the Fed will hike her interest rate in September".

I think the fall is just another tribute to the pessimistic sentiment. Many hedge funds have been betting on falling stock prices for months. They do a lot of fear mongering, spreading pessimistic rumours, overblowing disappointing news and dismissing positive facts. The media, which live from bad & shocking reports (man bites dog), compliantly spreads the scare mongering. Everyday you can read some crash & recession predictions.

But the economy is still doing fine. Last week we learned that the US jobless claims sank to the lowest level since 1973!, existing home sales grew with a solid pace and maufacturing picked up  (ritholtz businessinsider). The earning season had a sold start: More than 75% of the S&P 500 companies have beaten Wall Street profit predictions so far, reports Bloomberg (bloomberg  bespoke). Bellwethers like Starbucks, Visa, Google, Amazon beat the expectations handily.

If the Fed will raise interest rates soon, they will do it very modestly, because Yanet Yellen & Co. are well aware of the risks. And more important: Oil and other commodities got cheaper again, reducing the costs for the companies and leaving more money in the wallets of the consumers (driveby).

I am confindent that last week´s drop was just another irrational blip and will soon be forgotten.