If you’re looking for good economic news, you don’t need to look that hard.
The expectations-smashing November jobs report and the Federal Reserve’s willingness to hold rates flat for the foreseeable future offer plenty of confirmation for investors looking to validate their optimism.
But if too many people are expecting bad news, good news could have the opposite effect on the markets, turning them sour, Jefferies’ Sean Darby says. “The recent advance in the markets has not been necessarily a full blown exhibition of euphoria,” he wrote in a note to clients Thursday, “with investors skeptical of the rally given the unprecedented outflows over the past four quarters and the narrow breadth.”
As a result, Darby said that, based on recent client meetings, investors may have let their gloom get ahead of them. Pessimistic investors could find themselves surprised by good news, and specifically, by the strong performance of stocks whose fate is tied more to the macroeconomic picture than company specific performance issues.
“The bottom line,” Darby argued, “is that the stability that investors desperately seek might turn out to be ‘instability’ as investors have to unwind concentrated positions quickly as the global economy becomes ‘less bad’.”
Write to Ben Walsh at ben.walsh@barrons.com
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December 14, 2019 at 09:00PM
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How Gloomy Investors Can Sour the Market When There’s Good News - Barron's
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