Is the Market the Chicken or the Egg?

I’m a big believer in the self-fulfilling prophecy.  Why? Because if people keep telling you over and over again that something is going to happen, it is almost a certainty that we will find a way to make it come true.  Could this be the case with the market uneasiness that we have been experiencing the past few weeks?

Since the beginning of the year, as the stock market was making and retreating from new all-time highs, the commentary in the market turned decidedly bearish for seemingly no other reason than “we’ve had a good run.”   More and more the pundits started calling for a correction.  Isn’t this the safe bet?  It’s like flipping a coin and getting ten “heads” in a row.  It would seem a pretty safe bet that a “tail” will come up soon so we can start predicting it (yes, I know each flip is 50-50 chance of either heads or tails – but you get the point).

Contrary to popular belief, the market is not a living thing.  It’s just the arbitrary result of the collective actions of its participants.  Participants (like us) that are often not the most rational of thinkers when it comes to financial decisions.  Unfortunately, the constant chatter of the pundits finds a way to sway the fragile emotions of the market participants into action.   Market bubbles are never the product of rational thought. Remember the dot-coms?

In any given week we will see good and bad financial and economic news.  This past few weeks has been no different and the news in either direction has been far less than remarkable.  It’s just what the participants in the market choose to focus on that drives the direction.  There lies the self-fulfilling prophecy.  The market participants are getting uneasy because they are constantly being told they should be.

Are we headed for a correction?  Yes, at some point.  But isn’t that ultimately healthy?  We all know what happens when irrational analysis leads to a one-way market (hint – it always ends badly).

As Chicken Little waits for the sky to fall the rest of us are left wondering what, if anything, we should be doing.  Trying to guess the direction of the market is a sure-fire way to lose.  If your assets are properly allocated as part of a larger, long-term plan to meet your financial objectives and goals then the day-to-day gyrations in the market should be of no consequence.  If they are, then something in your plan is out of balance and should be reviewed.

Is the market the chicken or the egg?  Who cares!