I have recently read much analysis of the stock market by executives of some of the larger investment firms in the United States. The general flavor of their analysis is that the market is headed for a downturn, but that investors should not abandon stocks just yet. This of course is a signal for individual investors who are not dupes to head for the hills. The market movers are always one step ahead of the rest of us, and I have learned that when they say stay put, that is exactly when you should be moving your money into cash. These market mavens are basically saying, "Don't get out until we have had our chance to divest away from stocks."
One of the methods used to fool the unsophisticated investor into losing his money, is the old bait and switch instrument used for hundreds of years by con men. The way it works in the market was aptly illustrated with the Commerce Department's retail sales data for the month of February. Retail sales rose by three tenths of a percent in February, which was, as they say, "better than expected." But it is better than expected by the very persons telling you to stay in the market. So it behooves them to prepare everyone for a horrible number so when it merely comes in bad, it looks good in comparison. During normal economic times and during previous recoveries from recessions, retail sales increased by whole numbers, not by tenths.
The trick used by market movers to keep unsophisticated investors in the market is analogous to your employer telling you that your pay is going to be cut by 15%, and then when it is only cut by 10% you consider it a raise. Historically, the month of February is a boon month for retail because the normal lull in January is over and people are buying again. So the three tenths of a percent increase looks even more pathetic in this context.
The market did lose ground yesterday, the DOW's 231 point drop being exemplary of this fact. But it was based on uncertainty over the Ukraine situation and the fear of a global slowdown highlighted by lower than expected economic data from China. It has been interesting to watch the market react negatively to a drop in Chinese production and consumption that is still much better than the United States, whose pathetic data has lately been blamed on Winter weather.
Whether or not yesterday's significant drop in the market was the end of the bull market that just began its sixth year, is hard to say. But as an investment strategist once said, "I would rather miss an opportunity than miss capital." With both the U.S. and global economies heading into a slowdown and probable recession, uncertainty in the Ukraine, and the Federal Reserve pulling away its artificial supports that have been propping up the market for the last five years, stocks are even a riskier asset than normal. Follow the advice of market movers, whose job it is to keep one step ahead of the average investor, at your own risk.