Weighing The Week Ahead: Why Is The Market So Quiet?

Health care stocks. UnitedHealth (UNHreported good earnings but the price collapsed after the CEO warned about the effects of Medicare for All explains James Picerno. I have been looking at the sector because it is cheap and any replacement for the current health care system is years away from passage. The problem is the continual negative discussion and lack of a near-term catalyst. Barron’s agrees with that assessment and suggests a 12 -18 month time frame. There are more promising investments at the moment, but it might be a good candidate for those following my Enhanced Yield approach. We are adding some positions this week, and this sort of “value trap” is a good place to search.

Final Thought

Explaining a quiet market is the extreme example of media behavior I cite regularly. There is no effort to separate signal from noise. Daily variations in the 1% range are the long-term norm. Trying to squeeze meaning out of nothing is a triumph of invention over reason. I don’t need to know someone’s guess about why the Dow “moved triple digits” and I certainly don’t need an explanation when there is no movement at all.

Despite the lack of meaning from this “news”, many investors are falling victim to the trap (identified above) by Dr. Brett.

One trick used by commentators is the personalization of markets. Making the result of millions of individual actions into a simple adjective makes for a good story. Markets can be tired, fickle, facilitating or unhealthy if you are willing to ascribe human traits. Treating trading as a sporting event – bulls against bears – is another trick. You get to define a line of key resistance, e.g., “If the bulls can’t take it past 2810, the rally will fail.”

It is challenging but much more useful to think of markets as the interaction of millions of participants. Each has motives, an agenda, a plan, and maybe rules to follow. Some are emotional – worried about a news item, politics, advice from a relative, or a market crash prediction. Some are systematic and logical. There is no way to aggregate these many different motives and feelings.

On a given day, most people do not change their positions. Their time frame is longer. Despite this, they may be tempted to act on the news of the moment, turning amorphous ill-defined worries into action. Instead of reaching their plan, they may find themselves in the position of the self-employed day trader, deep in debt, who wagered $85,000 on Tiger Woods to win the Masters. That worked this time, but it is easy to imagine a different outcome based on the bounce of the ball.

Extreme changes in your asset allocation can lead to desperate recovery efforts. If you feel that your personal risk is too high, just nudge your normal stock allocation a bit lower.

And also, some longer-term items on my radar.

I’m more worried about:

  • Oil markets. Administration policy, pushing China and India to enforce sanctions against Iran and Venezuela, is pressuring oil markets. This could undermine the low inflation outlook that has prevailed. (NYT).
  • Post Mueller report politics. Needed compromises cannot happen with such intense partisanship. This includes the growing problem of government debt.

I’m less worried about

  • Brexit. As is often the case, governments are reluctant to drive over a cliff. Deadlines are flexible. Some remain pessimistic that the needed political changes can be achieved. (CFR).
  • Recession concerns, especially as we move past Q1 data and get some stability.
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