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Fear Factor Overdone?
The past two weeks in the stock market have continued on a painful downward trend. On Monday, June 17th, the stock markets tried to stage a broad, strong rally; but that was squashed over the remainder of the week as more Middle East bombing news raised the fear factor on the markets again. I’m not trying to convince anyone that there are not real concerns and fears in our current marketplace, but I think we have swung the fear factor too far into the “world is ending” camp and need to bring our thinking back to a more moderate point of view.
Let’s list the major negatives and then try and balance those fears with some positive thoughts. This list is not in order of greatest to lowest fear, nor meant to trivialize the events. terrorist threats to USwar in Middle East corporate crooks and accounting scandalsdirty bombs and human bombsovervalued stocks and an overvalued dollar, etc. All these fears are weighing down the stock markets.
Now let’s list some of the good news. low interest rates and low inflationa diverse American economythe presence of the US position in the world as a military superpowerstock values (as measured by the S&P 500) at a 34% discount from the March 2000 highsa rapid pace of technological development All these positives are temporarily being discounted or forgotten.
Times are rarely ever all good or all bad. Yet, emotionally we like to try to simplify issues into black or white, bull or bear, good or bad. The markets will continue to work in both good and bad times. The markets worked during World War II, they worked during the depression and they worked during the booming 1980s and 90s. They are working now and will eventually, work higher. Given the seemingly excessive levels of pessimism and fear currently priced into the stock market, a contrarian investor may view this as the perfect time to be invested and stay invested. As our fears moderate and we return to a more balanced outlook for the stock markets, the downward pressure on stocks could quickly reverse itself.
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