Has Mr. Market Changed Itself?
It is common practice that on every fund sheet it’s written that “historical prices are not indicative of future returns”. The same way people use history before looking at a certain stock or fund - history and news event affect people's investing decisions. For example when Donald Trump was elected and the Dow Futures fell over 800 points on election night - billionaire Carl Icahn left his victory party to buy stocks. What he did was a investment decisions based on market tendencies after a significant news event. Usually, what has happened in the past is whenever a negative news event took place- the market responded by opening in the red and usually presents itself with a buying opportunity. However, the next morning when the market opened - it opened in the green and while Icahn still made money those thinking they would buy in the morning had something else waiting for them...
So the question remains has the market essentially revamped itself and detuned itself to the news?
If we take a look at recent events with what is happening with Harvey, the situation in North Korea, the solar eclipse causing multiple power outages - business has been usual with the market rolling ahead and barely reacting to many of the situations. Even last year during Brexit - the market did get hit but picked up within the following week.
There’s a a good reason behind this:
I think the market has gotten used to the fact that so many things are happening nowadays. Just like society has an information overload we also have an overload of events. Every week it seems something new is going on and the market just doesn't react the same anymore. In a way the market has essentially gotten desensitized to anything that happens outside the confines of wall & bay street.
What does this mean going forward?
Well for starters it looks like big events will no longer cause the market to drop - but then again the market operates in mysterious ways. For the time being we know that most dips in stock prices reflect buying opportunities for a value investor to swoop in - essentially what happens now is a buying opportunity is removed.
A nice line came from Larry Swerdoe at MoneyWatch who wrote “ the market will react - you shouldn’t” which is great because it just re-enforces the idea you should not get into the habit of timing the markets.
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