The Signal and The Noise (Part 2)

How can we tell what’s really happening?

Great Circus Parade, Milwaukee, WI. Photo: Royal Broil. Source: Wikipedia

When the newsreels stop rolling and the microphones go away, we’re sometimes left with the impression that a circus parade just rolled by. Did anything actually change, or did we just see a cavalcade of horses, camels, and clowns roll down Main Street? We’ve heard about news stories with an underlying agenda too many times.

When we read any important news item, something that always changes is our perception of the news. Our perceptions meld together into expectations, and those expectations get built into stock and bond prices. It doesn’t happen perfectly and it doesn’t happen all at once, but market prices then reflect the general news stream.

That’s why everyone was so downcast last winter. Several Fed Governors gave speeches where they said that the Fed planned to raise rates four times in 2016. That got investors scared: was the Fed “behind the curve”? By contrast, the sky-high sentiment we’ve seen lately among the software giants mirrors the expectation people have today that software will eat the world.

Market trends then tend to get overdone. Feelings investors have reinforce and feed on themselves. Black days or sunny skies look like they will stretch on forever. But they never do. We look back at those times and ask ourselves, “What were we thinking?”

It’s a fair question. Because when everyone thinks alike, everyone is likely to be wrong.

Douglas R. Tengdin, CFA

By | 2017-07-17T12:21:17+00:00 June 13th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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