Well, some birthday party this has been. For several trading days the anchors have been quite serious and sober on CNBC, practically in crash mode. Oops, we don’t say crash, we say dip, correction, decline, sell-off, heavy selling, pressure to the downside, decliners beating up on advancers, searching for a bottom. Searching for a bottom is particularly important. Because once we find a bottom, the market goes up again. Like in the old days. Remember the old days? Back then people occasionally talked about a top. But the people who talked about a top were worrywarts. Remember?
Anyway, my colleague Chatterbox was correct the other day when he suggested that the presidential candidates were unlikely to mention the bull’s 10th anniversary in their debates. But then, even the Wall Street Journal’s coverage was fairly muted, and for obvious reasons: The market has been floundering for months. Now, less than a week after the birthday (which is really sort of arbitrary–plenty of people date this bull all the way back to 1982), the Dow this morning has slipped back through the fabled 10,000 mark.
Does it matter? No, not really: As many others have noted, Dow 10,000 is no more intrinsically important than Dow 10,012 or Dow 9,974. Even so, it’s worth noting that even the Wall Street Journal’s bull birthday coverage the other day cautiously raised the possibility that the party might be a bit of a charade. The point being, as this column has noted in the past, that market tops and market bottoms are much easier to judge after the fact.
The market has been up so sharply over the past 10 years (or 18, or whatever you prefer) that it’s easy to overreact. To borrow another of the many great clichés that feed market coverage, the conventional wisdom is that the market’s problem is that it was “priced for perfection.” What this means is that there was a lot of optimism that the good news would keep on coming, and after a while, anything short of eye-popping, gangbusters growth starts to look like a sell signal. This is why a company like Yahoo! can report “solid” numbers and still get shellacked–even going into its announcement the other day, the company’s share price still reflected wild optimism about its future.
Now, Dow sub-10,000 shouldn’t matter; psychology is not supposed to matter to an efficient market, but it’s hard to deny that the boundless “buy on the dips” optimism of recent years has been suspiciously muted at least since May. So when an event like the Dow’s eclipse of the 10,000 mark gets trumpeted as something like V-E day, it’s only natural that falling back below that mark would be an outsized bummer. Still, eventually fundamentals like earnings do overtake psychology. Maybe that means that we’re about to “find thebottom,” and the Dow will surge right back past10,000any minute now and stay there forever. Maybe.