Thoughts on the Market

Leonard Susskind, the noted theoretical physicist, famously quoted that Einstein proved that different observers, in different states of motion, see different realities. The markets are constantly in motion. Whether it is earnings, news, rumors, or just normal daily activity, every stock is reacting both to its own forces and in relation to the overall direction of the market. How any of those data points are perceived by the market is dependent on the intentions of the observer.

In the children’s fantasy novel, Peter Pan, these are the directions to Neverland, home of Peter Pan and the Lost Boys. With investing, it is often difficult to know which star to follow as the investment horizon is ever changing, and never totally clear. In recent months, market focus has shifted among inflation, interest rates, corporate earnings, and even politics. All these items can have a profound effect on markets that must be carefully navigated. This month, we will review these points to determine the best investment path forward.

Details. Details. In the investment world, as long as the market is moving higher, data points that are deemed irrelevant are ignored until they become relevant. On August 5, we saw a large sell off in US equities after a 12% decline in Japan’s Nikkei stock index, all triggered by a rise in the yen after the Bank of Japan increased their interest rate from 0.1% to 0.25%. How does such a little thing as a 0.15% Japanese rate increase send the US market into a tailspin?