“Risks Remain in this Market”

One of the staples of the financial media is telling us that “risks remain in this market.” There are several different ways of spinning this. You can get a key quote from some muckety muck. See “Summers Says Markets Underestimating Risks of Trump Presidency.”

My problem with these stories is that they sound as if they’re saying something sober and judicious when they’re really saying very little. Of course, there are risks in every market.

Risk involves two components: the chance that something will happen and the fallout from what does happen. Last year was a perfect example of risky things happening but not having the expected impact. Brexit and Donald Trump were expected to lose at the polls. In both cases, a win was expected to bring disaster to follow. Both happened and markets took them in stride.

People tend to view the market as a running back darting downfield, avoiding tackles and sprinting toward the end zone. That’s a fun but flawed metaphor. Instead, the market synthesizes events. It’s more like a giant scale that’s constantly weighing new information. There are always risks, but the question is, how important (i.e., heavy) are they?

Posted by on January 3rd, 2017 at 12:27 pm


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