Predictably, US equities recovered Wednesday after a multi-day slide left pundits pretending to be flummoxed at the prospect of two-way price action.
This is a familiar dynamic that plays out every, single time stocks notch record highs in succession. Let me tell you how it works.
As equities summit new peaks, commentators regale the media with boilerplate soundbites sourced from a Rolodex labeled “cautionary remarks.” Typically, those soundbites go something like the following (and I’m just making one up to show you how easy it is to conjure generic color):
We seem to be pricing in all the good news and none of the risks. Considering the aggressive vaccination timeline in the US and what we expect will be an exceptionally strong period for the economy, it’s understandable that investors are optimistic. But we wouldn’t be surprised to see a pullback in the near-term given historically elevated valuations and negative news flow around rising virus cases in some key emerging markets.
Then, a few days later, the pullback comes. Invariably, the same pundits who, two sessions previous, weren’t going to be surprised, are surprised after all, leading to headlines like this one, from Bloomberg on Tuesday: “Stumble in Stocks Lacks Easy Explanation for Wall Street Pundits.”
You laugh. And you should. Because it’s funny. It’s an undeniably humorous charade. The screenshot, below, is a visualization of the dynamic.
If it makes you uncomfortable to conceptualize of the equity market as a casino, or as a forum for humanity to trade ownership stakes in make-believe legal entities called “corporations,” and if you shudder at the extent to which markets can no longer be accurately described as a mechanism for price discovery thanks to central banks’ heavy-handed intervention, then just think of the stock market as a television anchor talking to BofA’s Savita Subramanian. Because really, that’s pretty accurate on most days.
“What is the ‘stock market,’ dad?” “Well, son, I’m glad you asked. The stock market is a conversation between people on television and a nice lady named Savita Subramanian.”
I’m just trying to elicit some chuckles. The daily, boilerplate commentary actually does serve a purpose. And I’ll tell you what that purpose is.
One of the most important lessons I’ve learned over the past two decades (give or take) is that while you can safely lose track of the market narrative for a day or two, failing to read the boilerplate commentary for any longer than that risks falling out of the loop.
Once you’re out of the loop, you risk losing track not just of the generic, running narrative as told by the punditry, but of the market zeitgeist itself. That can cost you money. And it’s one of the reasons why, despite being what most people would describe as “retired,” I never (ever) stop producing market commentary.
As any regular reader can attest, I have never once taken a “day off” in the entire short history of the site. Not for any weekends, not for any holidays, not for anything. There’s always something going on somewhere, and whatever it is can teach you something. Writing about it enhances your understanding. And immeasurably so. The sheer amount of knowledge sitting “out there” (as it were) just waiting to be discovered is so immense, that I find it impossible to conceive of an existence spent doing anything other than what I do every day. Time not spent absorbing new information and communicating it enthusiastically to the audience I’m so fortunate to have, is time wasted in my view.
People often ask how it is that I’m able to switch gears so deftly, writing one minute about ostensible market arcana and the next about the fraying of America’s socioeconomic fabric. As much as I’d like to tell you it’s attributable to some genius gene that only I possess, the truth is far more mundane. The more you read, the more you know. And the more you write about what you read, the more familiar the narrative becomes.
Think about your favorite songs. You likely know the lyrics to them. How many are there? Probably a dozen or more. Has it ever occurred to you how remarkable it is that your brain knows the lyrics to that many songs? It’s the same thing with market narratives and geopolitical pontificating. Once you know the melody and assuming you enjoy listening, you can sing the songs all day, even putting your own spin on them. The difference between me and most people is, I can actually “sing.” (By “sing” I mean I can write. I can’t actually sing. And I don’t like music).
Locals (and some readers) tend to think I’m some kind of Renaissance man gone adrift. I suppose that’s more or less true, but stripped of the flattering portrayals and self-mythologizing, I actually only know how to do two things exceptionally well. It just happens that one of those two things (learning) opens a number of other doors (e.g., investing, writing and building businesses).
For those wondering, the market narrative on Wednesday was that the ubiquitous “dip-buyers” were busy. They weren’t identified. Maybe they “couldn’t be reached for comment” or “weren’t authorized to speak publicly on the matter,” to roll out two more media clichés. As one generic headline declared: “Market mood turns risk-on.”
Be sure to tune in tomorrow for “Stocks sag again as virus worries weigh” or “Stocks extend gains to second day with virus worries waning” or, better still, “Stocks struggle for direction as investors parse earnings.”