For those attempting to interpret today’s rapid-fire political events, here’s an oldie but goodie from Robert Prechter, illustrating the tenuous connection between market action and exogenous events.
Whatever one may think of Prechter’s own forecasting ability, he certainly raises some interesting questions. I’m particularly impressed with figures 5 and 6, covering the Kennedy assassination. Who’d have guessed the market outcome?
My point is this. Bull markets have a life of their own. Endogenous factors such as market breadth and sector leadership are – arguably – more important than exogenous factors such as political events. If political events are causing market indicators to give unhealthy readings, okay. But when market evidence opposes political narratives, it’s probably best to side with the market.
Today’s market is issuing healthy signals. After a recent breakout from a two-year consolidation, broad indices are achieving new highs, corroborated by market breadth. Economically sensitive sectors – financials, industrials, materials, and technology – are leading the charge, suggesting a healthy economic footing. We suspect, therefore, that the market has entered the mid-innings of a cyclical bull market which began in February 2016… and is likely to run into 2018 or longer.
Question. Will market historians someday view the overnight crash-and-reversal of November 8th-9th as a sign of underlying market strength comparable to the Kennedy assassination?