Market Analysis

Main Street, Bling Street?

The media's contradictory views are driven more by fear than fundamentals. Investors are better served by focusing on fundamentals over the long term.

Quick—don't think, just answer. Was the S&P 500 up or down in August?

(Answer: Up.)

If you got that right, you get to enter the bonus round. Does it matter?

(Answer: No.)

Yes, the market managed a slightly positive return in August, despite non-stop headlines of economic Armageddon. It wasn't an eye-blistering month for American stocks, but positive nonetheless. We've been saying all along we don't view current market activity as the harbinger of a bear market; rather, we're more likely in midst a typical bull market correction. Yet, we wouldn't use August's positive return as evidence we're right. (Being so focused on short-term returns, even a month's returns, only leads to humiliation and heartache.) But we certainly wouldn't denigrate it either, like this article:

Wall Street Isn't the Economy
By Ezra Klein, The American Prospect

The article cautions that one month's positive return doesn't mean anything (we agree!) because "Wall Street isn't Main Street." (Snooze. Trite metaphor alert.) In a weird way, the article is right, cautioning investors not to get carried away by one month's green up arrow. Good advice! But what's more disturbing about this article is the tired assertion that Wall Street isn't Main Street. (What does that even mean? Where is this Main Street, USA?) Rather than arguing the validity of this jejune metaphor, we'll point out this statement seems directly at odds with other popular news stories of late, for example:

Yellen Sees `Significant' Pressure on U.S. Economy
By Scott Lanman and Vivien Lou Chen

In this article, San Francisco Fed president Yellen anticipates a weaker-than-expected economy because of market volatility. In her view, Wall Street is Main Street. We don't agree with her gloomy economic outlook, but these articles beautifully portray two popular media views. View one: When the market's positive, only select people participate, so it doesn't really help the broad economy. View two: When the market's particularly volatile or negative, it ruins the economy for all of society.

If you're a journalist, you can't lose in this situation. Market up, sob story. Market down, bigger sob story. This kind of contradictory reporting is quite common. For example, rising long-term rates earlier this year were terrible because it meant the bull market must end (according to the media). When long-term rates began dropping recently, the bull market had to end because of the credit crunch. Long-term rates up, bad. Long-term rates down, also bad. (And don't bother figuring out why falling long-term rates signal a credit crunch. That makes no fundamental sense to us either.) You can play this lots of ways. Consumer spending up, bad (consumers are already overindebted). Consumer spending down, worse (consumer spending drives our economy). Get ready for this when the Fed meets next week—Fed cut, bad. Fed hike, worse.

Sure, all these fears can increase volatility in the near-term—but near-term forecasting is a fool's errand anyway. Investors are far better off tuning out contradictory and baseless fear stories, ignoring short-term swings, and focusing on what's likeliest to drive the market over the next 12 months or so. Fundamentals like a growing global economy, strong earnings, and benign interest rates. Wise investors know the only thing to do during bull market corrections is stay long-term focused, and for inspiration, look to the stars. And we don't mean the galaxy—we mean rap stars.

Hip-Hop Stars Rap on Investing
By Staff,

"Work hard, don't abuse credit and balance the bling against your future needs." Well said, Lil' Mo. Well said.


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