Sometimes the term “bubble” seems to refer to how oblivious the stock market can be to the news.
By Vikram Rangala
Monday, March 2, 2015
News that was troubling to the markets just weeks ago seems irrelevant today: Ukraine, Greece, even a major offensive against ISIL. Every US market except the S&P 500 rose to record highs this morning, with the Nasdaq reaching a level it hasn’t seen since the tech bubble of 2000. What news item drove the rally? Take your pick—or ignore them all.
Assassination in Moscow and the Micex
The Micex is a good example of this kind of bubble. The Russian index rose 1.4 percent, the most in two weeks, even as the ruble fell 1.3 percent after its advance in February. The big news from Russia, of course, is the murder of former deputy prime minister Boris Nemtsov. An opposition leader and fierce critic of Vladimir Putin, Nemtsov had just hours before been on a radio show calling Putin “a pathological liar.” A vocal critic of the Ukraine war is shot four times in broad daylight while walking within view of the Kremlin with his Ukrainian model girlfriend. Sounds like the start of a Jason Bourne movie, doesn’t it?
Some are pointing a finger at Putin, though what he stands to gain from Nemtsov’s death is unclear. Others, including former president Mikhail Gorbachev, blamed unnamed anti-Russian forces trying to destabilize the country. Still others are speculating that the CIA might be trying to damage Putin’s reputation. With so many wild theories about the murder itself, it’s hard to say how it might affect the market. The headline, “Russian stocks rally after politician assassinated,” sounds bizarre, but that’s what happened.
Warren Buffett’s Annual Letter to Shareholders
US stocks are similarly rallying without a clear reason why. Sure, you can find a reason if you want. One candidate is Warren Buffett’s annual letter to shareholders, which included special sections on the 50th anniversary of the company and showed the company outperforming the S&P 500 by a ridiculous margin once again. If great writing could rally a market, the letter would certainly qualify. It’s a model for any business student to learn from.
The letter was bullish news for US investors in general, except perhaps for people holding stock in Tesco. Buffett called his $444 million stake in the supermarket “a big mistake” he should have exited sooner, and then compared Tesco’s problems to “a cockroach in your kitchen.” Tesco stock continued its drop and the company announced it was firing yet another executive amid ongoing fraud investigations. It’s hard to put a good spin on “cockroach.”
Apple Watch, Greek Unrest, and Formaldehyde-laced Flooring
The best explanation one can give for today’s rally is that it’s a continuation of last month’s rally. Maybe the Nasdaq is looking forward to the March 9 Apple Watch unveiling, which follows last year’s unveiling of Apple’s intention to unveil a new watch this year.
One thing European markets are looking forward to is Thursday’s ECB meeting, in which the first round of bond buying in the quantitative easing program will be revealed. Europe has a nice confluence of bullish events going on. The German parliament just approved Greece’s loan extension and the Greek government approved it as well, despite violence from some leftists in PM Tsipras’s Syriza party. Consumer prices in Europe didn’t fall as much as expected. The euro also weakening, which is good for exports. Overall, the situation makes buying stocks the most logical thing to do for investors.
The one company besides Tesco you wouldn’t want to be involved with today is Lumber Liquidators. The hardwood flooring company used to be a darling of investors, until it admitted inflating profits. Then came a 60 Minutes investigation, which started in part to find out why so many hedge funds were shorting the high-flying stock. One fund manager told 60 Minutes he was tipped off that the problems he saw in the company were nothing compared to the real problem: Lumber Liquidators was deliberately selling flooring made in Chinese factories that used dangerous levels of formaldehyde.
Mr. Spock Gets the Last Word
So maybe sometimes the news does explain market behavior. Companies that lie and sell poisonous products should see their stock hit the floor, pardon the expression. And European action to save Europe is certainly worth getting optimistic about.
But I don’t think the Apple Watch has much to do with the Nasdaq rally, even if Apple makes up fully 10% of the Nasdaq’s value. My reason is best expressed in a quote from Spock, played by the late Leonard Nimoy, who died last week at age 83: “After a time, you may find that having is not so pleasing a thing after all as wanting. It is not logical, but it is often true.”
This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.