Stocks rise and optimism abounds as indications that governments will continue monetary policy easing, job reports are high, and oil prices jump forward. At the highest point since 1999 all three indexes rose (SPX, DJI, and S&P). Maintaining access to credit in a growing economy seems to be fueling optimism and investment.
Optimism can make a big difference in investments and stocks. When people feel the market will be in their favor they will take more risks and buy stocks in an effort to increase their wealth. As a herd, the more people who feel optimistic, the more they will buy increasing wealth for many.
This runs well until people become pessimistic about the market. Events from around the globe can easily impact the American economy and visa versa with the rest of the world. When investors sell they do so in a way that decrease economic activity and can lead to market loss.
There are natural fluctuations in the market that are mostly unpredictable. Investors seek assurances such as rising employment, consumer purchasing behavior, government actions, and world activities to determine their next investment steps. Optimism is not an irrational belief but based on selective attention to market indicators.
Some investors are definitely better at picking out trends in the market and knowing where to invest their hard earned money. Even the best can make mistakes and readily admit them out loud. At present the market is turning to indicate a stronger economy is abounding and government is willing to continue the risks of quantitative easing.
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