In the world of investing, there is an old saying that goes, “Buy the rumor, sell the news.” What this is saying is that investors make their money on assuming an outcome based off of facts. Once a news outlet has gotten a hold of a piece of information, you are too late. At that point, enough market participants have acted on the information that there is very little upside potential.
Even with all of the negative bits of news, the rumors floating around are rather intriguing.
In the last two weeks, we have seen CPI rise slightly, a drop in MBA Purchase Applications due to rising mortgage rates, and a drop in Consumer Sentiment. Typically, these numbers would be a bit startling for those seeking signs of financial stability.
Even those these reports signal negativity, at the time of penning this article the Dow Jones Industrial Average is within 150 points of its all-time high, less than 1%. The NASDAQ is within just 7 points if its record high as well.
Thomson Reuters reported that for the week ending September 11th, 2013 domestic equity funds saw inflows of $1.8 billion while non-domestic equity funds saw inflows of $1.9 billion. The week of August 14th, the Wall Street Journal reported equity mutual fund inflows of $2.6 billion. All of these inflows stem from a record July of $40.3 billion of inflows into US equity funds.
Many investors are struggling with this concept. How could the news coming from the Federal Reserve, Treasury Dept, etc. be so bland, or even at times dismal, yet result in equities performing so well? There are a couple of reasons for these solid equity numbers of the last several weeks.
As we wrote going back months, many US companies have been sitting on cash and have been afraid to deploy capital. It is quite possible that companies are beginning to deploy that capital, enticing investors back into the markets.
Another reason could be the current interest rate environment that we are facing. With bond funds facing massive outflows, many investors are looking for a place to put their hard earned cash to work for them, and are getting back in to the markets, putting their 2008 concerns and memories on the backburner.
What we try to help others understand is that media outlets are too late to the game when it comes to investing. There is no breaking piece of news that you can learn from CNBC that is going to make or break your 401(k). If an investor is reading an economic report from Bloomberg.com, they are too late to act on it. If MSNBC reports that initial jobless claims are down, the markets have already factored that information into prices before the investor can even pick up their phone or log on to their computer.
When investing, it is essential to stay ahead of the curve. The goal should not be to react to a report that is due out; it should be to know what the report is going to say due to numerous other factors prior to the report’s release, and acting accordingly.
It is impossible to say specifically what the markets see going forward, when we will reach the top, or what that level will be. The point is that news outlets and the markets are not portraying the same story right now. If history shows us anything, it is that the markets act on news far before it ever reaches Main Street.