Stock Markets: Merry Christmas 2018

(Drivebycuriosity) - Christmas is the season for reflection but also for giving gifts. "The best aspect of Christmas is the aspect usually decried by the mystics: the fact that Christmas has been commercialized. The gift-buying stimulates an enormous outpouring of ingenuity in the creation of products devoted to a single purpose: to give men pleasure. And the street decorations put up by department stores and other institutions—the Christmas trees, the winking lights, the glittering colors—provide the city with a spectacular display, which only “commercial greed” could afford to give us. One would have to be terribly depressed to resist the wonderful gaiety of that spectacle". From the Ayn Rand Lexicon (aynrand).

The  stock market disappointed this year, reminding me of the year 2011. The S&P 500, the gauge for the US stock market, dropped 12% since Christmas 2017. The market had setback after the gains of 2017 & 2016. As in 2011 the market got confused by a lot of noise & speculation. Trump`s trade war, a cooling global economy and climbing interest rates are fanning fears of a recession in 2019. And the Christmas government shutdown doesn`t help.

In the moment Wall Street is driven by negative sentiment & herding behavior rules. Falling stock prices are creating fear and are inducing more people to sell. The crowd of fund managers and other so-called professional is following blindly some skeptic bellwethers. 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.

But the recession talk is unfounded. The US economy is still solid, jobless rates & weekly jobless claims are close to all-time lows and company earnings are growing more than 20% annually. Companies are also 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. And falling oil prices - minus 40% since October - are creating a new tailwind for the global economy. I assume that the global economy will re-accelerate next year, thanks to cheaper oil and the reduced US taxes, disappointing the pessimists, and the rally will restart as it did in 2012. Happy Christmas to all.