The stock index futures overlooked soft US economic data last week, and there is a lot that investors need to be concerned about. The data was weak, but it was expected. The market quickly corrected itself and the S&P 500 Index quickly rebounded higher on hopes of more gains.
This is not an isolated incident. Over the last few years we’ve seen this so-called economic recovery or recoveries fail time again. And most recently, we have the failure in China’s economy. China has been very good at creating new jobs and rising wages. However, the massive stock market crash, which resulted in a collapse in its market value, was felt all around the world, including in the United States. In fact, it is now widely considered a major global economic event.
While it is important to understand why this type of market collapse happens, it is even more critical to understand how it happens. As we have previously mentioned, it is likely the Chinese economic data was overstated and traders quickly corrected their losses and pulled out of the market. There is no question that China plays a very large role in the global economy. But is the S&P 500 Index doing the same?
One explanation for the strength of this particular market, which goes beyond the overreaction to fundamental economic data, is that there is an inherent bias that results from the fact that the S&P 500 represents all of the stocks that are currently trading on the major exchanges. If you take a quick look at the list of stocks that make up the index, you will notice that nearly everyone is either trading on the Pink Sheets or the Big Board. That is because the S&P 500 incorporates all of the publicly traded companies that are currently generating financial results. Now, when you take a look at an equity market chart, the large majority of the individual stocks being traded are represented on Nasdaq, the MSN, or the NYSE.
Why is this important? For one thing, because it means that if there was only one trading day left to invest in the markets, you would want to make sure that you were investing in the best company that has the potential to grow at the greatest rate possible. However, what you will find is that the vast majority of the S&P 500 Index companies do not have positive long-term reputations and their financial data does not indicate an ability to grow their revenues or profit margins. As you will see from the chart, there are some gaps in performance between the underlying asset prices and the trading activity on the exchanges.
Is this because the market decided that these particular companies were worth less than their actual value? Many people feel that this is the case, however as stock investors and market researchers such as William Morrison consistently point out, this is not necessarily true. There can be plenty of reasons for gaps in performance between the underlying asset and the price of the stock. The reality is that it is much more complex than that. It may simply be that a large number of buyers and sellers did not perceive the value of the underlying asset correctly and chose to purchase shares instead. One example of this is the rise of oil and gas stocks over the last decade, which saw many traders buy shares of these companies during the good times only to sell them once the price began to fall.
How does SPTC perform? The short answer is that it does very well. Even during the recent bear market, SPTC was able to maintain its price above the benchmark index. This means that even during times when the market appears to be crashing down on the heels of a massive collapse in oil and gas prices, SPTC is able to maintain its lofty levels. If you were to look at the charts of the various oil and gas companies listed on the S&P 500, you would see that nearly every single one of them saw their revenues fall by more than 10% during the past year or so.
This means that there is no reason for any investor to think that SPTC will suddenly depreciate in price like so many other stocks have done recently. In fact, many experts in the trading world consider SPTC to be a strong buy since it provides excellent long term performance. Many of the technical charts on the website to track very well the growth of prices, so you can see that this is not some kind of “fickle” investment. In fact, over the long run, SPTC is a solid buy since it is expected to continue to perform strongly. This is especially true given the fact that even during the current bear market, prices of oil and gas have increased approximately ten percent over the past year