Fear Driving the Markets Higher

No, the title is not a misprint.

At Ockham, we believe that as an exceptionally good blog by Market Folly points out, markets are being driven by fear again. In contrast to the fear, uncertainty and doubt that sent the markets reeling in the fall of 2008 and again in early 2009, this time the fear is the that of underperformance making money managers feel they must get into the market now. As Market Folly explains, these days the pressure on money managers is so great that anyone not yet in the market is forced to throw bearishness aside and dive in head first for fear of losing clients because they missed out on an unexplainable rally. After all everything is easy to explain in hindsight. Even though it might go against every bone in their body because the economic improvement has yet to justify the nearly 40% rally, money managers are forced to flood the market in hopes to keep up.

Money moves the markets, and with a lot of money management assets potentially at stake, managers are scurrying to keep up with the market’s blistering pace. For any wealth manager or institutional investor who was proven too bearish leading into this rally, that means catch up buying or potentially even short covering. The markets have risen rapidly because of an imbalance of buyers versus sellers, and one key reason must be this fear of assets fleeing after a bad month or two.

Anyone interested in this topic really should read this post by Market Folly because it clearly explains an often overlooked aspect that can drive the markets.

Fear Driving the Markets Higher

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Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

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