The status of the current market is a clear reminder there are times when market perception far exceeds market reality. The perception that President Trump will be good for the market spurred buying trends following the election. From election night on November 8 to Inauguration Day on January 20th the S&P 500 ($SP500) and Dow Jones Industrial Average ($DJIA) jumped up 6.2% and 8.2% respectively.
We then saw a minor rollback after the first two weeks of the new Trump Administration. In the month following the inauguration, the indices have moved up just 2.0% for the S&P and 2.3% for the DJIA.
The above stats provide an implied assumption that the “Trump Rally” is fading. But is it? After all, the market continues to reach new highs. So, what is market perception and what is reality? What is fueling the market’s higher moves and where is the impetus coming from?
Is the data telling the whole truth?
The answer lies in that the market is trading on the perception that Trump is good for American commerce. This translates into the idea he’ll be a positive effect on the markets. But we still don’t know whether this is a perception or a reality?
The short answer is that at this point we still don’t know. One thing we do know is a market reality that can help determine Trump’s validity while giving us a clue to future market direction. The market is highly overbought based upon an overabundance of metrics. When the market is in this condition, a common market perception is to expect a bearish correction sooner rather than later.
Larry Fink, the CEO of the world’s largest asset manager BlackRock, said in a recent interview his market perception is “there are dark shadows that could impact the direction of the marketplace.” He goes on to explain this is due to the recent moves by President Trump. He adds that the markets “look ‘bi-polar’ and wouldn’t be surprised if there were setbacks for stocks.”
This suggests there truly is a change in market perception occurring, slight as it may be. His most vocal adversaries take these perceptions and run with them. They claim that he creates instability with world leaders, Congress, and wide segments of the American population. While the reality is that none of these things have had a negative effect on the market. Suggesting once again, market perception exceeds reality.
Market perception and the average trader
So what does this have to do with you, Joe Q. Trader? It suggests that politics have a limited effect on the markets compared to policy. So far, the initiated Trump policies have only had a slight effect on the market. Though they tend to be the driving force of many pundits that have the perception of Trump as a catalyst.
Don’t trade based on political ideals, instead find a reliable source of data. A source unmotivated by political happenings and can look at the important aspects of market movements. A source like VantagePoint that relies on identifying market trends and uses artificial intelligence to identify intermarket relationships affecting a given market and produces market forecasts that are up to 86% accurate. When you stop relying on talking heads and their market perceptions and start focusing on the realities you see in VantagePoint, be ready for the reality of a growing portfolio.
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