Market Discounts Bad News
by Charles B. Carlson, CFA
Dow Theory Forecasts

The market discounts bad news. That's why it is always dicey to sell based on some news event.

Take the retailing stocks. This holiday shopping season has been somewhat of a train wreck for retailers. By some estimates, the holiday shopping season will be the worst in more than 30 years.

Time to sell retailers, right?

Not so fast.

Indeed, the S&P retailing index is already down sharply since early December. Thus, one could argue that the market had already taken into account the tough holiday shopping season.

Interestingly, a number of retailers have held up reasonably well in recent sessions despite the lousy shopping results, indicating that perhaps the bad news is already in the stocks.

Bottom line: Investors who tend to be reactive often dump stocks when they should consider buying them, and vice versa.

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