Gone Girl: Are Stocks Going or Coming?

Finally, some movies to write about, and none seems more appropriate for the current market environment than David Fincher’s Gone Girl, based on the Gillian Flynn novel of the same name. The movie is a whodunit, centering on the question of whether a husband had killed his missing wife. Since this is a Fincher film, you never know quiet who to believe or what’s really happening. Dallas Morning News’ Chris Vognar says “the book’s game of misdirection” has been “tuned into a mischievous high-wire act,” while Slate’s Dana Stevens calls Gone Girl “a deliciously manipulative mystery that toys with the viewer like a femme fatale with her prey.” That could be good enough for a box-office topping $40 million opening weekend, according to Box Office Mojo.

Everett

Investors are far less enthusiastic about mystery, deception and uncertainty–despite the fact that the stock market is the ultimate unreliable narrator. How else to explain a week that began in the pits of despair but ended on a high note? The S&P 500 fell 0.75% to 1,967.90 after rising 1.12% today, while the Dow Jones Industrial Average fell 0.6% to 17,009.69 after gaining 1.24% Friday. The Nasdaq Composite, meanwhile, declined 0.81% to 4,475.62 after it advanced 1% on Friday, while the small-company Russell 2000 finished the week off 1.3% at 1,104.7 after climbing 0.76%.

For the most part, the falls and rises in the stock market followed the data. On Wednesday, for instance, the S&P 500 fell 1.3% after manufacturing and construction data disappointed. Today, it gained about as much after the jobs data surprised to the upside. That’s because the Fed has said it’s going to let the data determine whether it will hike rates or not, but nearly everyone is expecting it to happen sooner rather than later. The only problem: Most of this data is unreliable. AllianceBernstein’s Joseph Carson explains:

Policymakers have made it crystal clear that their decision to raise official rates is "data dependent." Yet, what does "data dependent" mean in a world where real-time data often lack reliability and policymakers' assessments of economic conditions are sometimes clouded by the inaccuracies inherent in that real-time data?

Over the past few years, initial reports on employment, spending, construction, orders and the economy in general have often painted an inaccurate picture— frequently failing to capture the positive changes in underlying fundamental conditions and trends. There is little doubt that a lack of accurate real-time data has, at times, contributed to policy confusion and inaction.

Fundstrat Global Advisors’ Thomas Lee thinks the fact that so many fund managers have underperfomed this year means the market will head higher until the end of the year:

The average fund is underperforming their respective benchmark by 230bp based on a review of 2,410 funds, managing $5.7 trillion in assets. The only category where there is any relative outperformance is small-cap managers, where the average fund is beating their benchmark by a mere 60bp…

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Note how well markets have done into year-end when the performance of managers is significantly poor going into 4Q….years where fund managers are underperforming significantly saw an average gain of 9%, while those years where fewer are missing their benchmarks saw YE gains of only 4%. We believe this reflects the level of "beta chase" or the pressure on managers to recoup/catch-up to the market overall.

Despite the unreliability of the data, the market and even the narratives underpinning bullishness, it’s not time to get gone yet.