After the market's triple-digit rebound on Friday, the bulls came out in force — on TV and social media. Here's how the talking heads explain the state of the market after one scary week.
And the bulls started coming out of the woodwork.
“…the mid-week storm in the market was really a passing sun shower — though we did not know it at the time,” — Jonathan Lewis, chief investment officer, Samson Capital Advisors.
“…we remain steadfast with our multi-year bull-market scenario, as corrections and periods of consolidation are necessary ingredients to any prolonged bull market.” — Brian Belski, chief investment strategist BMO Capital Markets
“Whether the complete correction is over I’m not positive yet, but there looks to be some relative calm. I think the next leg is going to be higher.” – Jim Iuorio of TJM Institutional Services via CNBC
“The time to rebalance [and buy stocks] is when doing so requires courage and when things look ugly. Right now, investors are worried and see things as being ugly.” – David Kotok, chairman of Cumberland Advisors
A common theme from the bulls is that for all the worries about the global recovery, the U.S. economy looks solid:
“Ironically, the pullback in stocks has occurred against a backdrop of a strengthening U.S. economy.” — Gregg Fisher, chief investment officer at Gerstein Fisher
“The question is whether it is actually the beginning of a bear market. I don’t think so because I don’t expect a recession in the U.S. anytime soon.” — Edward Yardeni, president of Yardeni Research
Of course, Yardeni goes on to add that:
“the Eurozone and Japan may be heading in that direction now. So is Brazil. China is slowing significantly.”
Shouldn’t investors be worried, then, that a recession in the European Union could reverberate in the U.S.?
Fear not, the bulls have an answer for that:
“The impact of an E.U. slowdown on U.S. growth would be minimal: U.S. exports to the E.U. are a small proportion of GDP (2.8% in 2013)…” notes UBS economist Maury Harris.
Many point out that economic factors have not really shifted since a month ago, when the stock market seemed just fine.
“You can go deep in the weeds in this if you like, but the fact is that nothing fundamental has changed in recent weeks or months or quarters,” writes Jared Bernstein, a senior fellow at the Center for Budget and Policy Priorities.
Many experts are saying that this week’s wild market swings are actually just the result of “narrative fallacy,” which leads investors to come up with explanations for market moves where they don’t necessarily exist — in this case placing blame on external forces like Ebola and fears of rising interest rates.
But who’s to say that the bulls aren’t the ones who are now coming with plausible-sounding explanations for why the rally should keep going?
For the record, the bears have more entertaining explanations in their quiver. For instance, there’s the McDonald’s theory. As in, “as the Big Mac goes, so goes the global economy.”
Permabear Marc Faber, who edits the Gloom Doom Boom site, noted the following:
“Now, McDonald’s is a very good indicator of the global economy. If McDonald’s doesn’t increase its sales, it tells you that the monetary policies have largely failed in the sense that prices are going up more than disposable income, and so people have less purchasing power.”
And Mickey D’s sales have been slumping badly lately.
Then there’s the so-called dental indicator.
Bloomberg Businessweek reported a nifty theory that says that the rate at which Americans cancel scheduled follow-up visits offers a good clue about the real state of the consumer — and in turn the financial markets.
“This is a forward indicator signifying lack of consumer confidence.” — Vijay Sikka, president of Sikka Software, as told to Bloomberg Businessweek
And the follow-through rate on follow-up dental visits has sunk to about where it was in 2007, just before the last downturn/bear market.
At this stage, it’s impossible to tell whether this is the start of bear market or a buying opportunity. However, what’s absolutely clear is that big dips are just a normal part of being a stock investor.
Despite anxieties about the Dow’s sudden plunge this week, if you look at historical performance, the index typically turns negative for the year often enough that it’s not a good doomsday indicator, says author and investment adviser Josh Brown.
And at the end of the day, who’s to say which wacky theories wind up being right or wrong?