Recently, a so called financial expert on television said that the market is forward looking. How true is that statement today?
I see a problem with this statement that the market is always forward looking. Recently, companies around the US have been laying off employees.
Stock prices have gone lower as people expect things to get much worse. As a result, some people cut spending, sell assets and stocks. This is forward looking.
However, as the recession grows, the market may go from forward looking to one that is based on current needs. When the economy gets worse and unemployment is near its peak, funds will ineviatably be tight for a great number of people.
In such a case stocks will go much lower as people try to raise money to pay for living expenses. When the stock market goes lower, the outside observer that believes that the market is forward looking may believe that the low stock prices are a forecast of the future when in reality it is what is going on currently.
