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Main » 2016 » September » 7 » John Butters - S & P500 chart the most irrational
John Butters - S & P500 chart the most irrational



John Butters, an economist by FactSet, called the graph of the most irrational of all possible schedules reflecting the dynamics of broad market index - on AMarkets materials.




The green curve, stretching up - is, in fact, S & P500. C beginning of the quarter index increased by 3.4%. The blue curve - the expected return on the companies of the index - from the beginning of the quarter went down by 2.5%.



When looking at the situation, from the viewpoint of classical economic theory, the graph, in general, there is no common sense. When falling corporate profits, especially when expectations fall on making profit, it would be necessary to wait that the quotations of securities also fall. Because in an ideal market prices reflect the discounted future profit companies.


However, in our example, profits are falling, but rates are rising. The third quarter marked the 16th episode of the past 20 quarters, when the index fell to the EPS segment of the first two months of the quarter despite the fact that the index value increased in the interval of the first two months of the quarter. The bottom line - cheap money multiply irrationality of US Fed. And once it becomes clear - where leave these crazy amounts of liquidity hot - not the economy, and the stock market.





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