The sort of stock market surge I hate

Yesterday was party day across the world’s equity markets.  The Dow Jones Industrial Average (DJIA) was up 0.8%, the Standard & Poor’s 500-stock Index was up 1.1%, the NASDAQ Composite was up 1.5%, the German stock market was up 1.1%, the French stock market was up 2.5%, and the Stoxx Europe 600 was up 0.8%.  Supposedly the rise was triggered by encouraging data posted worldwide by factories.

As a constant examiner of such data I can tell you that the sort of data logged by factories worldwide has not in recent memory served as the cause for such a powering of equity prices.  Remember, for equities to be up by these amounts means that literally billions of dollars of wealth was created worldwide yesterday based on very limited factory data.

This is the sort of stock market surge that I hate.  No news rises.

I could speculate as to the “legitimate” causes for the surge in equity values, but it would be entirely based on speculation.  Instead, I would like to point out that I much prefer stock market surges that can be traced to legit causes.  That let’s me know that equity investors are being rational.  The converse situation bothers me because it smells like a rise based on euphoria.

In my 2011 Predictions I stated that I felt equities would rise 10-14%.  So clearly I am bullish on U.S. equities.  However, that enthusiasm is based on evidence of an improving economy, coupled with an intuitive sense that people are feeling better about themselves and their lives.  I also like that many U.S. consumers and businesses have done the hard work to get their finances more in order over the last two years.  These choices have resulted in a prepared economy.

One of the reasons for the hard scrabble of 2008-2009 was the crazy rise in equity valuations of 2002-2008 based on exuberance and imagination to a much greater extent than reality.  Yesterday’s equity market rises had a lack of attribution that had the whiff of excitement, not realism.  I hate that!

Jason