The stock market is supposed to be a discounting mechanism that anticipates and prices in developments six months out. This discounting mechanism has been broken for so long that many participants seem to have forgotten how to do anything but buy the dips, the Pavlovian response to any decline in stocks that has been rewarded with a food pellet for the past five years.
If the shoe has been dropped, why wait until it hits the floor to sell? But incredibly, that is the overwhelming bias, even after the relatively modest decline of the past week.
Even though the Federal Reserve has made it abundantly clear that it is ending its quantitative easing (QE) bond and mortgage buying program (the Fed has already slashed it from $85 billion a month to $25 billion/month), punters are anticipating a decline in October: in other words, they expect market participants to wait until the shoe hits the floor--i.e. the Fed announces the end of QE--before they dump equities.
No comments:
Post a Comment