Bad Stock Market News May Be Good for You

Bad stock market news may make your knees tremble and your hands shake. It gives the talking heads and pundits something to do, but smart investors know how to see great opportunities hidden within the bad news.

For instance, when the typical investor sees his stock market portfolio losing money, his take is that it’s the type of bad stock market news that drives one to drink. But, if you have ever listened to what the savvy and successful investors tell their clients, they see something else in that event. They see stocks going on sale, meaning there are great opportunities to buy (or sell, depending on what they’re holding).

On Friday morning, in the pre-stock market trading hours, the Dow Futures Index rose over 100 points as many investors flocked to buy stocks the prices of which have been on the rise lately. One reason for the rise in stock prices has been renewed hope that oil production will be cut by producer nations such as Saudi Arabia and Russia, which would lead to higher oil prices and help struggling, indebted oil producing companies pay down their debts and potentially start turning a profit again. While that seems to be good stock market news to many people, there are others who see it as bad stock market news.

Why bad news? Well, rising oil prices mean rising gasoline prices. Haven’t you as a consumer been enjoying all that low-cost gas? Higher gas prices could also lead to higher shipping prices, which would increase the consumer price of goods like food and maybe the prices charged by service providers like UPS and FedEx.

Energy investors with a lot of oil and gas stocks in their portfolio may feel that they have good reason to see good news in rising oil prices. People who work in the oil and gas industry most likely see rising oil prices as good news, too, for the sake of their own security and perhaps increased pay or profits. But, those who would rather keep driving, travel, shipping, and food costs low see it as nerve-wracking, bad stock market news that the energy investors dread when they see a bear market in the energy sector. Most consumers aren’t emotionally (or literally) invested in caring about how oil and gas producers that took on loans are going to pay them back.

Tellingly, not everyone is cheering over the recent and brief (thus far) rally in global stock markets. Tom DeMark, the highly respected owner of a chart-watching and data analytics firm in Scottsdale, Arizona, is predicting a crash for the S&P in March. The present tense good news in the stock market may well be replaced by more bad news soon.

You could say that “bad stock market news” is quite often a matter of subjective human perspective.

Take a look at successful equity investors. For them, everyone else’s “bad stock market news” is their good news for stocks. They can reap big profits if equities go down and a bear market ensues. That’s because they’re the guys who see stocks as going on sale during these times.

Also, the recent corrections in the stock market, which are usually perceived (and reported) as being bad stock market news, have actually helped avoid a bubble that would burst and bust many investors one day. Federal Reserve Bank of St. Louis president James Bullard explained the situation on Thursday morning.

“If you look at the Wilshire 5000, it was increasing at a rapid pace all through 2013, 2014, up until January 2015. If it had continued up at that same pace, we’d be sitting here talking today about a bubble in U.S. equities. That isn’t what happened, [it] sold off, now we’re about 10% down from where we were [in] January 2015… I think it’s better pricing than it was: If we had continued to go up at that same pace, that would have been an asset pricing bubble. You’re [now] closer to fair value.”

The question for the investor, who is also a consumer, is always, “Is this really bad stock market news, or is this a new, better opportunity for me?”

[Photo by Richard Dew/AP Images]