Market Sentiment 11.21.18
The past few days have seen an aggressive sell-off. It looks like the struggles from October are not done yet. Considering the general sentiment that the economy continues to slow, the market continues to wait for any kind of positive commentary, especially regarding a potential pause on rate hikes and a resolution to the trade war with China. On Tuesday, the market started trading in bear market territory, with many stocks hitting 52-week lows, and total market ETFs also dipping below their January ‘18 levels. Today’s rebound makes sense, given that many quality stocks have seemed oversold, especially given the overall strength of the economy this year. While businesses do forecast a slower Q4 and perhaps beyond, it still seems odd that stocks would trade below their early 2018 levels (especially given the strong overall results from 2018). Even after today’s rebound, the general market looks like it’s at a discount vs. its net asset value. However, the struggles will likely continue until there is greater clarity on the aforementioned two issues, which would be the main drivers for a more optimistic sentiment on the US economy.
All things said, the most recent two months of market decline point to another instance of the disparity that can occur between market sentiment and logic. Holistically (and especially over the long term), I do believe markets are efficient. However, short-term movements can drive prices unreasonably high or low depending on market sentiment. In other words, there is a strong herd mentality with the market, but prices eventually come back to reasonable valuations.