Market Has Surprise Reaction to Looming Government Shutdown
Investors continue to defy logic.
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A frequent pattern of behavior in the market is the refusal to sell off on what appears to be an obvious catalyst.
There was no selloff following the Federal Reserve rate cut announcement, even though it was well anticipated and technical conditions were extended. And several times recently, the market continued to rise despite data reports that had bearish characteristics.
On Tuesday, the market struggled early in the day, but the bears were unable to generate sustained pressure on the likely closing of the government. Instead of selling the negative news, the buyers stepped up and took the market higher. That squeezed the shorts and created a fresh round of FOMO.
Market logic is very different from human logic. There is a strong inclination to do the opposite of what seems reasonable and is expected. The closing of the government is not a positive event. It will create uncertainty and will inconvenience many people. However, the market logic is that there is too much negativity, so the best course of action is to do the opposite of what is expected.
This action is a good example of why I question the wisdom of trying to call market tops. If you are using human logic, then it makes sense that this market should pull back and correct, but the market logic is that it is too obvious to sell off.
If the government shutdown drags out for a while, investors are likely to become impatient, and the lack of data for the Department of Labor will cause some uncertainty, but market logic is in control and a steady diet of bad news is a good thing.
My younger brother is very ill and I’ll be traveling for a few days to see him. Hopefully I’ll be back on Friday.
At the time of publication, DePorre had no positions in any securities mentioned.
