Why Last Week Didn't Matter, and Next Probably Won't Either
Investors early last Monday were treated with good news, as stock futures edged higher in pre-market trading. On Tuesday, people cheered a three-day winning streak for the S&P 500 (INDEX: ^GSPC) . But then on Tuesday evening, investors worried that European production data would send shares lower the next day. On Wednesday, we were told to "watch out for a correction -- or worse." On Thursday, the S&P 500 looked dangerously close to "key resistance" levels. Then yesterday, investors started out nervous about China's trade surplus but later cheered the S&P's close above the "psychologically significant level" of 1,400 for the first time since early May. Yes, that same dangerous level the day before.
Raise your hand if the market seems schizophrenic to you, too.
While all of these headlines were very exciting and seemed meaningful in the moment, none of them really amounted to anything significant for investors by week's end.
Despite what seems like a rollercoaster ride of signals and sentiment, the Dow Jones Industrial Average (INDEX: ^DJI) still closed up a respectable 0.85% and S&P clocked a 1.1% gain. The Volatility Index (INDEX: ^VIX) still sits at a tame 14.7, and the Dow is right in line with its long-term valuation, but don't tell the traders I told you that.
It's easy to get caught up in the impatient and short-term focus of the market, but there is very little that can ever be garnered from a week's worth of headlines. When you look at everything with that small of a lens, molehills look like mountains and you never figure out which direction you're headed.
Just consider the best-performing stocks on the Dow this week. Hewlett-Packard (NYS: HPQ) surged 7.9% while Alcoa and Cisco (NAS: CSCO) were both up 7.3%. With performances that strong, you'd imagine these companies were doing pretty darn well this year. Yet HP is still down 24% year to date, making it the largest Dow loser this year by a mile. Alcoa is only marginally up for the year and still trails the Dow, and Cisco is still one of only four Dow components with a negative year-to-date performance.
Meanwhile, Disney and Wal-Mart, two of the Dow's best-performing stocks this year, were both down for the week.
Taking a step back and tuning out all this market noise can be tough, but the narrow view is a dangerous one. It makes losers look like winners, exaggerates insignificant news, and clouds our judgment. Real investors know that the headlines of this week, and next week, and even the week after that will probably be meaningless. Instead, what matters is identifying great, stable companies for the long run.
If you need some suggestions about a few companies that fit this bill I suggest you learn about The 3 Dow Stocks Dividend Investors Need. It's our selection of set-and-forget dividend stocks that will keep paying you in good times and bad. They've all thrashed the market through this last rough patch, and you can read more about them.
The article Why Last Week Didn't Matter, and Next Probably Won't Either originally appeared on Fool.com.Austin Smith owns no shares of the companies mentioned here. The Motley Fool owns shares of Walt Disney and Cisco Systems.Motley Fool newsletter serviceshave recommended buying shares of Walt Disney. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.
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