Why Have Stocks Been Going Down
This correction has been very fast and furious. I talked about it yesterday and how downside momentum was beginning to wane. The old saying that stocks take the stairs to the tops and the elevator to the bottom definitely rings true here. This decline has been relentless with strong wave after strong wave of selling.
I can spend a lot of time debating why stocks have declined, but does it really matter? The stock market usually discounts economic activity 6-9 months down the road. However, it’s far from perfect. The media feels like they must assign a reason for each and every daily move in stocks. That’s not how markets work.
Several weeks ago, I published a blog piece about what was looking like an interest rate driven decline. http://investfortomorrowblog.com/archives/3825 The thing is, long-term rates peaked on October 5 and went straight down to October 26. They are not well correlated although perhaps there is a lead/lag relationship.
Many high profile companies have beat their earnings estimates, however their top line revenue numbers have missed. Investors didn’t sell because of what happened last quarter. That’s old news, history, in the rear view mirror. They sold because they believe that lower revenues will continue and begin a new trend.
I happen to believe that the election is causing more consternation in the investing community than people are publicly admitting. Although I will update my election model this weekend, it certainly looks like the House will go blue by at least 5 seats and the Senate will gain one or two red seats. Basically, that’s a return to gridlock and an end to the GOP’s pro-growth, low tax agenda. That’s one of the reasons I have been forecasting the ultimate low during the first two weeks of November. We have an election overhang.