Economic sentiment

[jamescummins]

Just something odd I have been pondering this morning...

Under what circumstances can, if any, negative economic sentiment actually drive an index higher? By index, I mean the major share indices...

I am thinking that recently the US gov for example had to step in and start guaranteeing firms (granted only two specialists, but the point stands). This could be viewed as incredibly negative, but because it is so negative the gov has to get involved, it is actually a positive because it guarantees the firms in question...

Another example might be this -
There is a general perception of negativity, and consequently people move money into 'safer' shares, like the oil majors for example, with fairly guaranteed cash flows. Because these firms carry such high index weightings, could that push the index up, even though the overall sentiment is negative?

Just a thought anyway - maybe some of the more knowledgeable people here can add to this

 

[Rossini]

Just something odd I have been pondering this morning...

Under what circumstances can, if any, negative economic sentiment actually drive an index higher? By index, I mean the major share indices...

I am thinking that recently the US gov for example had to step in and start guaranteeing firms (granted only two specialists, but the point stands). This could be viewed as incredibly negative, but because it is so negative the gov has to get involved, it is actually a positive because it guarantees the firms in question...

Does it guarantee the firms in queston though? Thats the real queston....

 

[jamescummins]

I take your point, but that is sort of irrelevant to what I mean...

I am basically just wondering how an index as a whole can move up, if sentiment is negative... The actual firms involved, or any particular index, is not really necessary to what I am getting at. I think I am saying that if overall mood is negative, it is a fair assumption that an index measuring a broad market would move down. Under what circumstances would such an index, with a negative mood, travel up? Maybe it never does!

 

[Rossini]

By 2011 if the dollar slips and becomes worthless the dow could be at 20000 but not worth any more than today, because the value of the currency is worth much less. This is what I was getting at- if the US gvmt carnt afford to support the company you where refering to that will be a disaster for the usd (and the world) and under some conditions the dow could still get weaker by a considerable ammount but priced higher.

 

[jamescummins]

good point, had not even considered the currency affect.
I was only a simple thought in the beginning - I should probably be doing more work!!

 

[MrGecko]

Another point to consider is how the market moving money is actually positioned, rather than the rhetoric splashed all over the wires -taken to the extreme, it almost doesn't matter one iota what the news or prevailing sentiment is... you are in a "stand off" situation where there are a few market moving forces, each keeping their hand to their chests and waiting for the other players to make the first move...

(grant me an artistic license here, but the point remains; the fundamentals of news + sentiment are important, but don't try to stand in the way of a freight train)