The Bad News Bears

Have you ever noticed that when you watch national weather forecasts they always focus on the worst storms?  Most of the country might have great weather, but they'll show the area with the worst.  After watching this day after day one might think the weather is awful everywhere.  Obviously that's not true. 

The same is true for stock market coverage.  There is always something to worry about.  When one bad headline subsides another gathers attention.  Investors often wait until there is more clarity, but there is always something to worry about.  That news can be a distraction for stock investors.  The only time I can remember when there wasn't anything to worry about was early 2000.  Stocks were strong and Y2K was a non-event.  We all know what happened to stocks after that!

 

Going back to the weather theme, have you noticed we hear the term "wind chill" every day in winter?  "It's 30, but it feels like 10."  Why is it we never hear the term in the summer?  Weathermen don't say, "It's 93, but with the nice breeze it feels like 81."  Hmmm.  Maybe it's that bad news is more interesting, that's all.

 

News coverage of the stock market is a lot like weather forecasting.  For example, you often hear the term "correction" when an uptrending market pulls back.  The term implies something is wrong and needs to be corrected.  Yet when stocks are falling in a bear market, the frequent rallies are never called corrections.  Only when stocks fall in a bull market do we hear the word.

 

Today, many in the financial press are shocked that stocks are strong given the problems in Syria, Ukraine, Russia and Iraq.  Earnings and interest rates move stocks, however.  We remain bullish because rates are low and won't move significantly higher anytime soon.  Earnings are growing at 10 percent and the market's P-E ratio is near its historical average.  That's why stocks have moved higher.  And they will ... 

 — David Vomund is a fee-only money manager.  Information is found at www.ETFportfolios.net or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.