Michelle's Blog

A resource for the thoughts and writings of Michelle Brennan Hall

Don’t Be A Lemming: When the Street gets it wrong

Looking back is easy to do. It’s looking ahead that is difficult. Yogi Berra said it best, “It’s tough to make predictions, especially about the future.” 

This year capital markets started with a jolt of news to digest in January, which sent the stock market into a tailspin and traders predicting Armageddon. Analysts brought down earnings expectations for the 1st quarter as talks of recession loomed. 

Interestingly, the people closest to news and markets (traders and analysts) missed the elephant in the room….strong economic fundamentals. In their unfounded panic, they missed critical data points like jobs growth, wage growth, strength in housing and auto sales, corporate buybacks increasing and job openings on the rise. 

With so much positive data and forward looking statistics for 2016, why did traders get the jitters in January and sell? Plain and simple, they just got it wrong and the herd effect took over. 

Looking forward, we expect that many companies will beat 1st quarter earnings expectations. We may even see confident companies raise earnings guidance for the rest of the year. With earnings in positive territory, the stock market could find confidence which will be good for investors. 

Another fact for investors to keep in mind is that previous presidential election years produced stock gains of 9.5% on average according to Ned Davis Research. No matter what party is victorious, presidential election years have historically been good for stocks.   

The January sell off is an instructive view on how emotions can cloud investor judgment and herd mentality can justify the wrong direction. Being purposeful in your investing can be a good guide when markets and media become negative. We viewed the January sell off as unfounded and advised investors to buy the market. Deploy cash. And stay focused on the long term. Old adages apply.

 

 

 

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance does not guarantee future results. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. It is our goal to help investors by identifying changing market conditions; however, investors should be aware that no investment advisor can accurately predict all of the changes that may occur in the economy or the stock market.

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