S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
WHAT INFLUENCES STOCK MARKETS? People use all kinds of information to make investment decisions. Benjamin Graham, who was Warren Buffett’s mentor, thought the proper approach was to evaluate company fundamentals. Graham wrote, “The stock investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.”
British economist John Maynard Keynes cautioned that how “others” think about stocks can have a significant effect on performance. Keynes is famous for saying, “Markets can remain irrational longer than you can remain solvent.”
Meme stocks, which are shares of companies that become popular through social media, demonstrated Keynes’ point. These companies often have poor fundamentals, but their stock prices soar because they are well-liked online. Social sentiment indicators use aggregated social media data to evaluate how people feel about companies. These data can be valuable to asset managers because digital influence can affect stock prices.
While tracking digital sentiment is relatively new, some surveys have measured how people feel about the economy and financial markets for decades. These include:
· The University of Michigan Index of Consumer Sentiment. The index ticked higher in February. Over the last three months, it has seen the sharpest gains in 30 years; however, consumer sentiment remains below the index’s long-term average, reported Christopher Rugaber of the Associated Press.
· The AAII Investor Sentiment Survey. Investors remained more bullish than usual last week with 44.3 percent saying they expected markets to move higher over the next six months. The historic average is 37.5 percent bullish.
Many factors affect the value of stocks and stock markets. “…Investor confidence is only one of many forces on the market. Stock prices are of course determined by supply and demand, and there are numerous factors that affect these, fundamental factors, legal, tax-related, demographic, technological, international, as well as other psychological factors related to attention, regret, anchoring, and availability,” explained the International Center for Finance at Yale University.
Stock market performance also can be affected by geopolitical factors, like conflict in Ukraine and the Middle East.
Weekly Focus – Think About It
“A long habit of not thinking a thing wrong gives it a superficial appearance of being right.”
—Thomas Paine, founding father
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