Each and every day that the markets are open, investors are bombarded with the neverending news stream that attempts to explain why the market is behaving as it is hour by hour, day by day, week by week.
But is it really the news that’s driving the market?
For example, a few days ago the yield on the 10 year treasury hit 3% and the equities market promptly swooned in response – at least that’s what the talking heads would have you believe. But if that were so, the equities market would not have snapped back, erasing most of the sell-off just a few days later.
So was that sell-off attributed to the 10 year treasury hitting 3% or was the market going to sell off anyway at that point? If it wasn’t the treasury note news, it would have been some other news taking the blame.
Or how about when Trump’s aluminum and steel industry tariffs were announced? The talking heads and analysts were warning that these tariffs could trigger a trade war and therefore derail the economy and therefore hurt corporate earnings and therefore trigger the next bear market.
In response to that, initially the market did sell off only to once again find support and recoup most of those short-term losses. So why were the tariffs going to be so damaging a few weeks ago but now they’re not?
One reason is there’s new news now to cover. Tariffs are old news and so somehow they’re not important anymore until the new cycle circles back on some fear-based report on tariffs.
Of course, most thinking people know by now that Trump’s tariffs are part of a negotiating strategy to level the international trade playing field with China in particular. And not only that, it’s part of Trump’s geopolitical strategy to demonstrate that the days of pushing the U.S. around are over.
Somehow none of that occurred to the analysts and talking heads a few weeks ago when they came out pretty much hysterical about the terrible negative aspects of tariffs. If you look at tariffs in a vacuum – yes – they can be damaging to trade and have been in the past, but that isn’t a very helpful way to analyze the impact of Trump’s announced tariffs in the current environment. Regardless of how you feel about these tariffs, the hysterical news reporting that attempts to explain market behavior once again is shown to be ineffective.
Or how about this? The FOMC is meeting this week to consider interest-rate policy and while the Fed has been raising rates slowly but surely, no rate increase is expected this time around so the Fed will not be blamed for anything that happens to the markets this week or next. Rather, some other news will be dredged up to explain why the market does indeed do what it does.
Another example is at the beginning of earnings season a few weeks ago, the analysts were almost giddy about the prospect for strong corporate earnings and how this is going to propel the market higher, but of course if the market already knows that earnings will be strong then that fact is almost always already baked into the price of the market. A point that the talking heads somehow always miss.
I think you get the point by now that the neverending stream of so-called news – real or fake – explaining why the market does this or that is practically of no value to the investor. Sober independent analysis both fundamental and technical will always beat hysteria-driven news reporting.