Stock Market: Mass Hysteria Killed The Bull

(Drivebycuriosity) - The bull market for stocks is dead. On Christmas eve ended the bull market which has started in spring 2009. The S&P 500 closed 20.06% below its intraday all-time high of 2,940.91 on Sept. 21. A minus of 20% or more usually ends a bull market and starts a new bear market.

Who killed the bull? I assume it was mass hysteria. Wikipedia defines mass hysteria - also called collective hysteria, group hysteria, or collective obsessional behavior - as a phenomenon that transmits collective illusions of threats, whether real or imaginary, through a population in society as a result of rumors and fear (wikipedia). This is a perfect description what happened in the recent days on Wall Street.

The US economy is still solid and is growing about 2,7% in the fourth quarter of 2018 ( frbatlanta.org). Jobless rates & weekly jobless claims are close to all-time lows and company earnings are climbing more than 20% annually. Companies are benefiting from a new industrial revolution: Advances in Internet, mobile computing, 3-d-printing, robotics, nano- & biotechnology and other technologies are reducing costs, raising efficiency and creating new markets. Lower oil prices (minus 40% since summer) and reduced taxes are generating tailwinds and China`s economy is still advancing 6% plus. But Wall Street focuses on Trump`s trade war, a cooling global economy, climbing interest rates and the recent government shutdown. And last weekend treasury Secretary Steven Mnuchin called the bank CEOs and asked them if they have enough liquidity to withstand a crisis - which spooked the already nervous markets even more!

In the recent days Wall Street ignored the positive fundamentals and was driven by negative sentiment & herding behavior rules. Falling stock prices created fear and induced more people to sell. The crowd of fund managers and other so-called professional followed blindly some skeptic bellwethers and the notorious scaremongers. Professional portfolio managers, including administrators of large funds, usually act as a herd. When their bros are selling they are selling too which amplifies the stock market movements. The recent slides animated many fund managers - and others - to take profits, apparently this encouraged short sellers to amplify their bets against the stock market. So the slides accelerated, causing more selling - a typical herd behavior. Falling stock prices also triggered stop-loss-orders. Many professionals set these sell orders to prevent further loses. Falling stock prices also triggered some computer programs to sell, aggravating the snowball effect.

“The stock market has predicted nine of the last five recessions” joked once economist and Nobel prize winner Paul Samuelson (wikiquote ). I assume that the global economy will re-accelerate next year, thanks to cheaper oil, the reduced US taxes & ongoing technological progress, disappointing the pessimists, and the rally will restart as it did in 2012.