The Week Ahead: Will Fear Beget More Fear?
Jeff Miller | Aug 25, 2013 03:55AM ET
Last week I predicted that the major theme for the week would focus on whether rising interest rates would kill the stock market rally. That was reasonably accurate, since the interest rate story was on the front burner during the wild Wednesday announcement of the FOMC minutes and also in the discussion of the disappointing housing news.
On balance, stocks held up pretty well, but the narrative was quite different. I was struck by a bearish shift in tone. Since I follow a wide variety of sources from different perspectives, this surprised me. It was almost as if there was a campaign of fear – and not just from the usual suspects.
This week may see more of the same. With so many anticipating a correction, how many fingers are on the "sell" trigger?
Will fear beget fear?
Experienced investors know markets – stocks, bonds, ETFs, commodities, real estate, etc. – have periods of unusual volatility. No market moves in a straight line. This does not mean that each move can be explained and they certainly cannot be predicted. The profession of punditry requires that experts go on TV or write articles explaining why stocks moved ½%, but it is not usually taken very seriously.
Was I imagining this difference in tone? If so, I am not alone. Joe Fahmy's intriguing post, Philip Tetlock demonstrated in his outstanding book, "Expert Political Judgment: How Good Is It? How Can We Know?" that even professional economic forecasters don't make accurate forecasts with any persistence. In fact, the only predictor of accuracy was fame, which was negatively correlated with accuracy. In fact, those more likely feted by the media made the worst forecasts. That explains a great deal about Dent."
Sticking to the data is less exciting, but more profitable. Meanwhile, the week ahead will feature pundits trying to make much out of little.
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