Market Analysis

Dour as It Gets

Stocks took a walloping today as media coverage of the economy reached its most dour levels of the year. But volatile markets and grim headlines are nothing new for this bull market.

Story Highlights:

  • Stocks took a walloping today when the only news of real substance was positive: US productivity surged
  • MarketMinder scans over 75 major business and new periodicals per day…this week has seen by far the most dour sentiment of the year in our view
  • A volatile market and pervasive pessimism is nothing new for this bull market

Wall Street took a good, solid walloping today as the S&P 500 shed nearly 3%. While folks are busy stuffing their heads in the sand with worry over the economy, we remain headstrong and bullish. This kind of market volatility is not comfortable to sit through, we know. But here is the part where disciplined investors stick to their guns and earn their stripes.

Grim. Deathly. Fatal. Casualty. These are the kinds of adjectives we find in today's financial headlines:

Grim Warnings Send Ripples through Markets
By Burton Frierson and Mike Peacock, Reuters

When something is "grim," death is implied, right? But is anyone really expecting the death of the US economy? Of course not. While this is another example of absurd sensationalism, it's also reflective of today's market sentiment.

The last three days are the most pervasively dour we've seen in 2007. Bearish articles easily outnumber bullish ones 10 to 1 so far this week. (Note: MarketMinder's staff peruses nearly 75 news and financial periodicals a day for headlines and relevant market news.)

For instance, an editorial in the Washington Post today doesn't waste time wondering if there's a recession or not—it's assumed ipso facto that we're headed for one soon. Since a US recession is inevitable and present, we are told why it's not so bad (the supposed "bright side" of things).

Recession's Hidden Virtues
By Robert Samuelson, Washington Post

Today might seem catastrophic, but the fact is 2007 has seen many such days—up and down. Too many investors have already forgotten the mini-correction that happened in February this year from which stocks recovered nicely, or that markets dipped better than 10% in the summer months, only to regain new all-time highs. Despite all the turbulence this year, we're still in positive territory year-to-date.

We invite you to take this trip down memory lane to keep the proper perspective when big down days like this come along.

At the beginning of the month, we warned investors that volatility is a perfectly normal part of stock market behavior, and to expect more big ups and downs:

Bumpy, Lumpy Bulls (11/1/2007)

A little less than a month ago, MarketMinder advised readers that new bear markets can't be predicted by the media or the masses—by definition of market efficiency they must sneak up on investors. Suffice it to say, if a bear were truly imminent, it wouldn't be taking many by surprise.

Flaming Kamikaze Squirrels! (And Other Anomalies) (10/19/2007)

Or, what about the way many folks forget how quickly things can change. The front part of October saw a boondoggle of a week for markets, which recaptured previous all-time highs. Had you been sitting on the sideline during that week, you'd have missed big gains.

What a Week! (10/5/2007)

Lastly, the media has been on recession watch all year, and they continue to be disappointed by the bullish news:

Recession Risks? Inconceivable! (9/4/2007)

Earlier this year, folks wondered if the Fed could "engineer" a so-called "Goldilocks" scenario for the economy. That is, solid economic growth with low unemployment and low inflation. It's a state of the economy that's "just right." While we wouldn't credit the Fed with this achievement …sure enough, Goldilocks is what we've got today.

  • GDP was 3.9% in the 3rd quarter—well above expectations
  • Unemployment remains under 5%
  • Inflation is hovering around a well-contained 2%
  • Non-farm productivity growth came in at a whopping 4.9% annual growth rate today—the strongest pace in four years!

This is Goldilocks and then some, which has many folks thinking it's too good to be true and seeing a dour future despite evidence to the contrary. Again, this is nothing new for 2007:

The Could Headlines (9/20/2007)

Perhaps the biggest pessimistic "could" outcome is a resumption of the so-called credit crunch. We debunked that notion just yesterday:

Credit Crunch II: A Box Office Flop! (11/6/2007)

The only way this isn't normal market volatility is if something big and bad is being priced into markets that no one currently sees. That prospect seems extremely remote today because folks are just so darned worried about everything.

Markets took a whacking today and market sentiment is about as dour as it gets, but these are the days where the best investors stay disciplined and earn those future gains. The facts and fundamentals remain heavily on the bulls' side.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.