What if you had a magic newspaper and were able to read tomorrow’s economic news today? Do you think you could successfully invest with that information?
It would make investing a lot easier, right? Well, maybe not.
Super investor Warren Buffett famously said, “If (Federal Reserve Chairman) Ben Bernanke whispered in my ear exactly what he’s going to do tomorrow, it wouldn’t change anything I’m going to do today.” The problem is it’s difficult to know how the market will interpret any given piece of information.
Take oil prices as an example. If we whispered in your ear that oil prices would fall $2 per barrel tomorrow, do you think that would be bullish or bearish for the stock market? In reality, it probably depends on the reason for the fall.
Generally speaking, falling oil prices are good for the economy because it lowers the cost of gas and may allow consumers to spend more money, which could lead to higher corporate profits. With that backdrop, if oil prices fell due to oversupply, it might be bullish for the stock market because consumers would have more money to spend.
However, if oil prices fell due to a slowing economy, some believe the stock market might sell-off because some consumers would lose their jobs and reduce spending.
So, even if you knew what was going to happen to oil prices tomorrow, you’d still need to know the “why” behind the price change to predict its impact on the stock market.
And oil is just one of many examples.
Think about the myriad of economic indicators, corporate announcements, political wrangling, regulatory actions, and other things that happen each week that could affect the stock market.
Trying to track all these factors and accurately discern their impact on the market would be futile.
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