Priced For Perfection? Maybe, Or Maybe It Doesn’t Matter

Financial markets are very complicated. The number of moving parts is basically infinite. It is a matter of distilling all of the tidbits and soundbites, and choosing the dominant theme, after you are certain that you understand the building blocks.

“Stocks for show, bonds for dough” is the phrase I use to give you building block #1A. There is no substitute from starting there. Understanding the cost of money is the key starting point to understanding finance, whether that is a stock, a bond, and the premiums/benefits you receive from insurance.

Given that interest rates are notably higher [0.35% is a LOT in the bond world], and yet, stocks have continued to be stable-ish, you then need to look further.

  • Stocks are ‘cheap’ when compared to their earnings? Meh, that is a defense that we very normally do not use.

  • There are more buyers than sellers? Ah. Look at the image below. Money is sitting on the sidelines, dealers may be buying in anticipation. That is entirely possible, and does explain how/why stocks have been resilient.

  • Note: today is again different, the third Friday of every month is an options’ expiry day, so very technically-driven by options trading. I wouldn’t necessarily glean anything from any single day.