by Ian Harvey
In nearly every situation there are two sides to be considered, and it is no different for participants in the stock market. But, choosing the wrong side, and in this case, a bearish outlook, can be extremely costly considering that we are in one of the longest bull-rallies in history.
Shortly after the major upset in 2008 subsided, the internet, emails, articles, videos, media headlines, television comments, etc., have bombarded the atmosphere with negative comments; “stock market crash imminent”, “a world of worry”, “recession signs”, warning on US economy, Global recession, “we are in a recession”, “free-fall”,” wages blasting higher”, “rising inflation”, “the Dow tumbles” and the list goes on.
If you had paid attention to these doomsayers' information, and acted on it, then you would have indeed lost a lot of your profits and/or capital. This “fear material” has been detrimental to the well-being of a progressive stock market; but the good news is that the bull-rally is still intact (Read the article “Stock Market Correction Completed!”.
Causes of Panic/Fear
Let’s observe some of the factors encountered by investors, and traders alike, which cause them to wane towards the side of “fear, and develop nervousness in relation to trading positively.”
The first obvious answer to this is that “fear” is generated by the media. Media has a lot to answer for in regard to this situation; as they want to report the worst of any given situation (how often do you read any really positive stories?). The media’s theory is that “the worse the news, or the more sensational, then the more readers,” whether it is actually true or not!
As already mentioned, to turn on the computer and open your email account to be constantly bombarded with negativity pertaining to stories relating to “a stock market crash is coming”. It is true that the bully rally will eventually come to an end based on history – but the question is when? As explained in the recent article, “The S&P 500 and 2,500 - Reaching the Elusive 2,500 Level!” not anytime soon; unless something drastic and totally unforeseen occurs.
Another major contributor to fear comes from some analysts and money managers with their bearish statements. How do you interpret headlines such as, “Goldman Sachs raises year-end S&P 500 forecast, but still sees benchmark lower from here - The investment bank raised its year-end target on the S&P to 2,400 from 2,300.”; considering that the S&P 500 Index (SPX) is sitting at 2,443.25 as of today!
And very recent negative comments received today from…..
And how do they know? Statements to have their names highlighted and cause downturns through conjecture – probably to fit some situation they are encountering!
Another factor that causes nervousness is the misinterpretation of reports about the economy or earnings. How many times do good companies report strong earnings and a sound future forecast to be pummeled due to unsound-reporting?
And, looking at economic reporting and how wrong it can be! For example the labor market reports, where the press is feeding a doom and gloom story, but in fact, despite all the hysterical hype, the American worker is actually faring quite well; which in turn drives the US economy.
Debunking the Fear Theory
It is obvious that the “fear factor” is gaining little traction as stocks are out-performing and reporting soaring profits. The proof can be seen from the information collated from the first quarter with:-
And this situation will continue into the second quarter (Read the article “Earnings Season Ahead - What to Look For and How to Play It!”), with plenty of positive pre-announcements indicating that companies have plenty of confidence in their earnings potential.
Moving on to the economic status of the US, this is on sound footing and tracking to be even better in the future according to the correct information.
GDP growth, an important measure of the overall rise in the American economy, will see the second quarter with a 3% growth on a seasonally adjusted basis. That’s a sharp jump from 1.2% in the first quarter, when company profits soared almost 14%; meaning that corporate profits will grow again in the second quarter with an expected 8.3% increase in earnings. This shows that Americans are making a lot of money overall, which in turn, is great for the stock market to continue roaring upwards. This is solid proof that the hysterical, doom and gloom supplied information is wrong again.
There is certainly an improving labor market, with growth in the labor force, which in turn produces higher productivity, wages are rising and people are becoming richer.
The Trump Administration program -- the
trillion-dollar federal infrastructure – and new legislation that would
reattach a work requirement to federal social programs, are positive moves
So, in reality there is still plenty of full-time employment available, worker’s compensation is containable, inflation is steady, and there is no major concern with Fed rates.
Therefore, the bull rally is still in favor; with plenty of economic growth, company earnings are continuing to grow, the stock market has great value still, and there are no major world catastrophes at this moment.
One favorable point about “fear” being generated, particularly for Stock Options Made Easy, is the volatility that it generates; as this, then, is certainly “acceptable” when dealing with certain options trades; also, stock traders purchase solid performing stocks at a reduced price when there is a pull-back caused by the chaos created by the generated “fear”.
We, at Stock Options Made Easy, have been able to put the “fear factor” to work for us, and are producing great profits for our members, from this effect.