Investors often look to news developments to explain moves in investment markets. Yet, among the venerable market observer Bob Farrell's investment rules, was "The market makes the news, the news does not make the market." That is, the stock market moves in ways that are not obvious from contemporaneous news items, yet observers demand plausible explanations tied to news items for every move in the market, large or small. Numerous factors influence stock prices and result, most simply, in a tradeoff between supply (ability and desire to sell stocks) versus demand (ability and desire to buy stocks).
For those who need plausible news to support my argument for a decline in stock prices ahead, three items in today's news may provide a signal to fundamental reasons for lower stock prices in the months ahead.
One, Europe's economy is contracting. The Eurozone Purchasing Managers' Index was reported today at 48.7. Two, China also is decelerating. HSBC's index of Chinese manufacturing was reported today at 48, also indicating contraction. Three, retail sales in the U.K. fell 0.8%. These developments will have negative implications for corporate earnings.
Whether it's for my reasons of overheated market sentiment and an overbought market, or because of fundamental deterioration, I reiterate my advice to raise cash for better future purchase opportunities.
S & P 500: 1395