There is no 12-Step Program for Wall Street junkies! Therefore, it is good to simply get away from it occasionally. Over the weekend, I remembered what I've been missing, i.e., the interplay between economics and investment strategy. A change in the Index of Leading Economic Indicators tells me something. So does a change in inventory levels or the Beige Book or M2 or . . .
Recent economic data has indicated a slowing economy but with no recessionary indication. The financial data from the S&P 500 companies for the second quarter has been quite strong, giving no sign of recession.
So, why is the stock market so volatile? The skittish paranoia doesn't reflect the fundamentals, either of the American economy or American corporations. Instead, it reflects what strategists call "headline risk." Despite largely good economic and corporate data yesterday, the market reacted to the headline that the meeting between Sarkozy and Merkel didn't produce any other headlines.
During such times, it is normally best to ignore the headlines as much as possible and use the dips as buying opportunities. However, don't forget that extremely volatile days, both up and down, such as we had last week, usually indicate a change in market direction.
