Mark Hulbert, the newsletter guru's guru, had an interesting piece on Markewatch today. While numerous media sources have attributed Tuesday's market's drop to shaky consumer confidence, Hulbert looked at the data objectively rather than subjectively. Here's what he found out, based on an analysis of 30 years worth of economic and market data:
Believe it or not, the relationship between consumer confidence and the stock market runs in just the opposite direction from what advisers and commentators were assuming it to be when, on Tuesday, they blamed the stock market's decline on the unexpected drop in consumer confidence.
The historical record shows there to be a slight tendency for the market to move inversely to consumer confidence, with high returns following periods of low confidence and below-average returns following periods of high confidence.
The historical record shows there to be a slight tendency for the market to move inversely to consumer confidence, with high returns following periods of low confidence and below-average returns following periods of high confidence.
This willingness to question conventional wisdom and ask the right questions to find counter-intuitive answers is a crucial component of successful investing. To learn more about how to ask the right questions, I urge to pick up a copy of Ken Fisher's book The Only Three Questions That Count.
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