Great Profits, No Stock Gains

So basically all the 2011 3rd quarter earnings are out, and not surprisingly, everyone’s been doing pretty well! Corporate America is sitting on a huge pile of cash that’s starting to be used to buy back shares and hand out dividends. However, they have not been hiring (at least nationally), because after the 2008 scare, Corporate America has realized that to survive this economy, you need cash (Cash is King!). Despite the huge profits, stocks have gone basically nowhere. Why?

The common consensus are the continuous problems in Europe (yes, Greece is an ass), and a major slowdown in China (there’s no soft landing in sight). But are these the real reasons? How big of an impact will they have on stocks? I don’t know. No one knows, because the market price is the collective knowledge of every single market player. So let’s take a look at investor psychology, since it’s rather easy to predict because human nature never changes.

In a bull market.

In a real bull market, investors tend to discount bad news.

In a bear market.

In a bear market, investors tend to discount good news.

In today’s market.

We have a couple of things pulling equities into a range.

  1. Stocks are still pretty far up. The big barrier is S&P 1.4k, which is basically the previous high. Breaking that barrier signals bad times are over, and we’re ready for another great, secular bull market! This requires a major change in investor attitude, because we’ve been in a secular bear market for 10 years already.
  2. On the other hand, no one really likes a bear market. Investors don’t really see any big fundamental reasons to sink down to March 2009 levels. If you want another panic, we need something really big to push us into crisis mode. Huge panics tend to occur after exuberance, and investors have gotten use to this gloomy market atmosphere.
  3. The biggest reason, I believe, for stocks trading in a range is because investors are TIRED. Equities have gone nowhere, and people are exhausted from watching the now “standard” 2% intraday fluctuations. During these times, most investors really don’t care which way things go. Just too dam tired. However, it is also during these times that a major movement begins to form, albeit slowly at first…….

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10 thoughts on “Great Profits, No Stock Gains”

  1. Since I don’t understand stock market, I don’t participate. I just watch for now. Maybe one day I will jump in. But now, I am not ready!

    1. Well, you got the right mindset. The worst thing one can do is understand nothing, and just dive into the market believing it’s easy money.

  2. stock market sucks these days. the technical patterns are all out of whack and is more news oriented than ever before. Who can trade in this kind of market?

  3. I saw some reports that mutual funds saw net outflows over the last couple of months. And treasuries are near highs. The volatility may be scaring them away.

  4. I’ve seen the market not doing much for a couple of reasons. One being that investors are still scared and sitting on the sidelines. But I am still buying and I will continue to buy until everyone else starts buying. I like to stay ahead of the pack. 🙂

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