Technology and the Quest for Market Knowledge
Technology is a wonderful thing. The increasing availability of raw data and computing power lowers barriers for new businesses to compete and allows most people to take on roles they would have avoided a few years ago. While I am clearly a beneficiary of this trend, as I can both manage client accounts and distribute my weekly newsletter EPIC Insights electronically, the desire to know more has a downside. As more information becomes available, investors embark on a quest to understand and predict every stock market movement. Believing that crunching one more data point or fine-tuning a magic algorithm will unlock the mysteries of the market, people travel down a road looking for certain answers to unsolvable problems.
Last week offers a perfect example of how the market can act counter to the news cycle. Entering the week, the Dow Jones Industrial Average (Dow) had suffered four triple-digit losses in the prior five trading days and was short-term oversold. We then saw excellent earnings from growth-stock darlings Apple (AAPL) and Amazon.com (AMZN), Ben Bernanke was confirmed to a second term as chairman of the Federal Reserve (Fed), and fourth-quarter gross domestic product (GDP) came in at a better than expected 5.7%. Most would see these results and expect a sharp rally. Instead, losses continued, with the Dow falling 1% on the week and now 3.5% lower for the year. Markets can act any way they wish, and those looking for certainty will be frustrated.