What Will the Stock Market Do Next?
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I’ve been asked to comment on the most recent market decline. My initial reaction was, markets go up and they go down. America is a great country but the U.S. Constitution doesn’t guarantee always-rising markets. I sat down and I wanted to write a reassuring message. I wanted to express my empathy. Somehow, I found that my reservoir of empathy was empty: After recent decline the market is still up twenty-something percent from the beginning of 2017.
And then I stumbled on Dalio and Wilson predicting what the market will do next, and I have to confess, I started writing and could not stop. (I apologize ahead of time for the rantiness of this message.)
- Ray Dalio: Cash on the sidelines will pour in to stem the bleeding in this market.
- Morgan Stanley’s Wilson warns investors not to buy the dip.
Two contradictory headlines on the MarketWatch home page, right next to each other.
Do you listen to Dalio or Wilson? I want to let you in on a small Wall Street secret: Neither Dalio nor Wilson knows what the stock market will do next. Don’t be fooled by their fancy pedigrees, the gazillions of dollars they manage, the eloquence of their logic, the myriad of data points they marshall. Nobody but nobody knows what the stock market will do tomorrow, next week or next year. Stock market behavior in the short term is completely random. Completely! You’ll have a better luck predicting the next card at a black jack table than guessing what the stock market will do next.
The media of course needs to fill pages and rack up views, and so there are gazillions of explanations (I’m trying to use the word gazillion at least three times in this article) for why the stock market does this or that. The explanations always sound rational, but for the most part they are worthless because they have zero forecasting power. A strong jobs report sent stocks up. Explanation: The economy is doing great. A strong jobs report sent stocks down. Explanation: Investors are worried about higher interest rates. I can give dual spin to any news, maybe only short of nuclear war.