Technical analysis reminds me of searching for gold at the end of a rainbow. Children of all ages are mesmerized by the story, yet no one to date has found a pot of gold. It’s not because gold isn’t there – it most certainly exists in the mind of every child. The problem is the rainbow; it’s circular, there is no end to it.
What happens in Washington has broad-reaching effects on the economy and our personal wealth. Uncertainty over economic policy is often thought to be a bad omen for future stock prices while general agreement is thought to be good for stocks. New evidence shows the current level of economic policy uncertainty is reflected in stock prices; although, it isn’t useful in predicting the market.
David M. Blitzer is managing director and chairman of the S&P Dow Jones Index Committee. He has the overall responsibility for index security selection as well as index analysis and management. A graduate of Cornell University with a B.S. in engineering, Dr. Blitzer received his M.A. in economics from the George Washington University and his Ph.D. in economics from Columbia University.
Wall Street is always coming up with cunning new marketing techniques to attract tourist investors. These are less-sophisticated individual investors and advisers who are easily wowed by glitzy industry trends, only to abandon them when the strategy falls short of expectations. The latest spin to attract tourist money is “smart beta.” The phrase didn’t exist one year ago, yet a Google search today shows 190,000 results. The inference that investing this way is smart has ignited a strong interest among less-sophisticated investors while those who truly understand what’s behind these strategies find the phrase distasteful at best.
Some people say today’s price-to-earnings ratio (P/E) is a sign of overvaluation. Others say it’s a sign of improved earnings growth in the future. In my view, it’s neither. The current valuation of the stock markets doesn’t tell us anything about the future of corporate earnings.