And the bulls started coming out of the woodwork.
A common theme from the bulls is that for all the worries about the global recovery, the U.S. economy looks solid:
Of course, Yardeni goes on to add that:
Shouldn’t investors be worried, then, that a recession in the European Union could reverberate in the U.S.?
Fear not, the bulls have an answer for that:
Many point out that economic factors have not really shifted since a month ago, when the stock market seemed just fine.
Many experts are saying that this week’s wild market swings are actually just the result of “narrative fallacy,” which leads investors to come up with explanations for market moves where they don’t necessarily exist — in this case placing blame on external forces like Ebola and fears of rising interest rates.
But who’s to say that the bulls aren’t the ones who are now coming with plausible-sounding explanations for why the rally should keep going?
For the record, the bears have more entertaining explanations in their quiver. For instance, there’s the McDonald’s theory. As in, “as the Big Mac goes, so goes the global economy.”
Permabear Marc Faber, who edits the Gloom Doom Boom site, noted the following:
And Mickey D’s sales have been slumping badly lately.
Then there’s the so-called dental indicator.
Bloomberg Businessweek reported a nifty theory that says that the rate at which Americans cancel scheduled follow-up visits offers a good clue about the real state of the consumer — and in turn the financial markets.
And the follow-through rate on follow-up dental visits has sunk to about where it was in 2007, just before the last downturn/bear market.
At this stage, it’s impossible to tell whether this is the start of bear market or a buying opportunity. However, what’s absolutely clear is that big dips are just a normal part of being a stock investor.
Despite anxieties about the Dow’s sudden plunge this week, if you look at historical performance, the index typically turns negative for the year often enough that it’s not a good doomsday indicator, says author and investment adviser Josh Brown.
And at the end of the day, who’s to say which wacky theories wind up being right or wrong?