Why the Markets Don’t Make Sense

They say figures don’t lie, but liars figure. If statistics prove anything, it’s that you can make statistics prove or disprove just about anything.

Analysts at Investopedia pulled closing prices for the S&P 500 from 2000 to late 2024, suggesting that November is the strongest month, based on average returns. September is the weakest, showing negative returns, but August is not much better, normally a time when markets are quieter. Traders take holidays so you generally do not find as much growth during the summer months. Interestingly enough, it is a futile exercise for those who try to time markets based on monthly swings as any abnormal returns are generally short-lived. Such prospects are quickly arbitraged away as investors learn about the patterns and markets become efficient. Timing markets in such fashion generally does not work.

As an example, back in the early 2000s, Hershey had strong upswings in early February, ideal to double your options in a week. I traded that strategy year after year. Then suddenly, it no longer worked. After several years, I recall struggling to get out of my position. If my memory serves, the market on those call options became efficient and I even lost. So much for that approach.

What is more interesting is that the SPDR S&P 500 ETF Trust (SPY), our stock of choice, continues to hit record highs almost on a daily basis these days. This, among a strange summer for financial markets. In just one week, we had new political attacks on the Federal Reserve with the attempted firing of a Federal Reserve member, disappointing earnings on our sweetheart stock Nvidia and tariff worries on low-cost imports. Any of these concerns would tank markets in normal times.

Yet SPY continues to rise… why?

First of all, the stock market is not a voting machine. Despite politicians taking credit for stock gains, investors do not give their White House approvals or disapprovals with their trading transactions. Stock pressure is merely a judge of how events might affect the price of assets, and, as of now, investors do not see any unknown threats. Markets can handle good news and even bad news; it’s the confusing uncertainty they can’t handle. Speaking of politicians taking credit for stock prices, it is interesting how President Trump weighed in on Cracker Barrel’s decision to change its logo. After criticizing the new format, the company decided to revert back to its original brand. Despite the immense public outcry, the White House took credit for the reversal… never to miss an opportunity.

Secondly, investors do not subscribe to the efficient market hypothesis, where the price of a stock is a rational reflection of all available information. Prices are set by emotion, momentum and estimates of future earnings.

Thirdly, the belief that stocks take the stairs up and the elevator down is totally true. When market sentiment turns negative, SPY shows it with a drastic downstroke. As I write this, the CBOE Volatility Index, VIX, however, is near the lowest for the year. Even the imminent court drama to fire Fed Governor Lisa Cook, better-than-expected economic growth and a new inflation reading are not enough to bring SPY down. The resilience of this stock keeps it afloat, and in fact, reaching new heights. Simply put, the market is in a growth mode.

We discuss these and other things in our reporting, both in the Trading Room and in the Morning Market Analysis. Skip the onerous analysis and let us do the heavy lifting. Join veteran trader Jon Johnson and me in the Trading Room, 9:20 to 10:30 a.m. each morning, as we assess the situation, make money and have fun doing it. Click the links for details.

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My name is Hugh, and between Jon and me, we have over 45 years of market experience. Take advantage of our expertise!

Great trading!

Hugh