Like all human relationships, my love affair with numbers has its "ups & downs." Numbers are a useful shortcut thorough the blizzard of words that bombard us almost every waking minute. But, when numbers become as vague and contradictory as words, the love affair suffers.
I've been trying to identify why the market has been so strong this year. One strong possibility is that "The Great Rotation" has begun, meaning that investors believe interest rates will rise soon, which will drive down the values of bond funds, which means it is time to sell bonds and buy stocks. Some of this is undoubtedly true as bond fund outflows spiked in Summer, when it was believed tapering of quantitative easing would begin in September. But, the bull started running in the early Spring.
Another strong possibility is that the small investor is returning to the stock market, after fleeing during the financial collapse in 2008 -- five years ago. However, the numbers aren't convincing either. It looks more like the average investor, who remained in the market, is just increasing their account balance, not that the timid investor is returning.
Related to that, trading volumes have remained quite low, suggesting investors are not returning. But, the ratio between BUY and SELL trades has shifted with more BUY orders and fewer SELL orders. Sellers have slowed down considerably, but why?
Another possibility is that consumer confidence, while volatile, is still up for the year, as consumers become increasingly callous to the ideologues making Congress so impotent and are paying less attention to that set of event-driven risks.
The only thing we know for sure is that the rise in stocks has been much greater than the rise in corporate earnings. The relationship should be much closer. Maybe, investors suspect a substantial rise in earnings in the near future. This is the more normal relationship, but doesn't seem to fit this year.
Maybe, it is just a weakness of numbers-lovers to look for an identifiable, quantitative reason for everything. Maybe, it is time to accept that there will always be "unknown unknowns" that are not knowable and just enjoy the ride. But, the search for a faithful, meaningful number never ends . . .
I've been trying to identify why the market has been so strong this year. One strong possibility is that "The Great Rotation" has begun, meaning that investors believe interest rates will rise soon, which will drive down the values of bond funds, which means it is time to sell bonds and buy stocks. Some of this is undoubtedly true as bond fund outflows spiked in Summer, when it was believed tapering of quantitative easing would begin in September. But, the bull started running in the early Spring.
Another strong possibility is that the small investor is returning to the stock market, after fleeing during the financial collapse in 2008 -- five years ago. However, the numbers aren't convincing either. It looks more like the average investor, who remained in the market, is just increasing their account balance, not that the timid investor is returning.
Related to that, trading volumes have remained quite low, suggesting investors are not returning. But, the ratio between BUY and SELL trades has shifted with more BUY orders and fewer SELL orders. Sellers have slowed down considerably, but why?
Another possibility is that consumer confidence, while volatile, is still up for the year, as consumers become increasingly callous to the ideologues making Congress so impotent and are paying less attention to that set of event-driven risks.
The only thing we know for sure is that the rise in stocks has been much greater than the rise in corporate earnings. The relationship should be much closer. Maybe, investors suspect a substantial rise in earnings in the near future. This is the more normal relationship, but doesn't seem to fit this year.
Maybe, it is just a weakness of numbers-lovers to look for an identifiable, quantitative reason for everything. Maybe, it is time to accept that there will always be "unknown unknowns" that are not knowable and just enjoy the ride. But, the search for a faithful, meaningful number never ends . . .
