What Controls Market Movement Over the Long-Term?

It can be very confusing trying to understand why equity markets are moving the way that they do. With the onslaught of information and misinformation, coupled with market makers dictating the price action, it seems like the market does whatever it wants.

Most of the time, its movements seem irrational and often appears to be moving in the opposite direction that most investors are postitioned for. Or similar to the current market, share prices will far exceed industry averages with price to earnings ratios reaching 300 to 400 times earnings in some cases. So, what is a good gauge to help understand the movements in the markets?

On short or medium-term timeframes it can be more difficult to discern why the market is doing what it is doing. There are constant swings in the market caused by a number of variables like shifts in market sentiment, reactions to economic data or geopolitical events, monetary and fiscal policy changes, media narratives, chart technicals, etc.

It is easier to get a general understanding of market movements or an idea of potential future market movements by focusing on the long-term market catalysts. These are the variables that dictate price action over the long periods of time. These are the stronger catalysts.

Of course, there are market moving events that cause short-term volatility or short-term swings in the market. These are temporary or weaker catalysts that have fewer effects in markets, hence the only temporary short-term swings.

Dont get caught up in the hype of a weak catalyst or panick into or out of an investment because of the short-term swings in volatility or price action. Instead, focus on the longer-term trends and stronger catalysts. These are what dictate long-term price action.

You always want to be alert for any new market moving event or catalyst that is strong enough to change long-term trends or market sentiment. Like things that can lead to a recession or flip a bull market into a bear market. We saw this happen over the past several years as the Fed flipped from accomidative policies to redtrictive policies, and then back to accomidative again.

I have provided a list of the ongoing long-term catalysts that are currently dictating market direction. Essentially, these are the variables that I believe are keeping us in a bull market. The list changes regularly as macroeconomic and market conditions change.

I scan over this list every day before the market opens to orient myself before making any shotty investment decisions that might deviate from the current trends. I have a list of the weaker shorter-term catalysts, but it is more important to focus on the stronger market catalsts when making long-term decisions.

If any of you Moo'ers out there can think of anything I need to add to the list, then please enlighten me in the comments section. I'm sure that I might be missing a few items.

1. The Federal Reserve has stated that it is going cut rates sometime this year while at the same time inflation has peaked and is currently falling.

Falling interest rates are accomodative for equities, bearish for the dollar, generally bullish for gold, and slightly bullish for other commodities if the dollar is falling.

Interest rate sensitive sectors will be affected accordingly by the upcoming rate cuts. The speed and size of the rate cuts are important as the open market may have incorrectly priced in the frequency and size of the rate cuts.

2. Macroeconomic data continues to show falling inflation while at the same time showing strong employment and wage data. This is good for the consumer, but the Fed needs employment data and wage data to weaken for any rate cut to happen sooner than current market expectations.

If there is a negative black swan event or something breaks due to interest rate hikes, like the banking or real estate sectors, then they will likely cut rates sooner than expected. They won't cut rates if inflation begins to stagnate and/or employment/wage data comes in as strong as it has been.

We are in a quasi goldilocks zone due to the current anti-inflationary environment that we are in. Any deviations in the current data trends will likely only cause temporary short-term and/or intraday swings in securities markets. If data comes in excessively negative, then remember the saying from 2022-2023, "bad news is good news, until it is too bad."

3. The AI Frenzy is ongoing, lifting anything associated with AI like semiconductors and tech companies.

Pharma companies associated with the new breakthrough weight loss drugs continue to see lift in equity markets while their peers underperform.

The concentrated rally seems to be broadening out to more areas of the market.

4. Geopolitical tensions in the Middle East and Russia are causing stress in energy markets. So far, the upward pressure on energy prices has subsided. Any escalation or deescalation will likely affect energy prices accordingly.

Keep in mind that energy supply in the U.S. is well above seasonal averages, and production is expected to increase in the near future. This has been buffering the upward movement of oil prices more recently.

5. Market Sentiment is mostly bullish, while small cap sentiment is more volatile due to the fluctuating mood towards the interest rate environment.

The media narrative is generally positive, accommodating equity markets.

6. The long-term technical are looking quite bullish for most areas in the market, especially big tech.

Much of the underperforming areas of the market joined the big tech rally somewhere towards the end of last year after the market warmed up to the idea of incoming rate cuts. The rally is continuing to broaden out, but it is a very selective market right now. Stock picking is essential in the current market environment.

There is always a time when the trends change and investors sentiment shifts due to some major global or macro event.

I like to track the possible negative catalyst that might pop up in the near future. I would hate to be caught off guard.

You can see this list directly below. I try not to react or make any investment decisions based on this list until I see the rest of the market reacting to the potential catalysts. Once again, if I am forgetting something on the list, then please let me know in the comments section.

1. The Chinese government is putting a lot of energy toward building confidence in their equity markets. Watch for a possible change of the trends in Chinese equity markets.

2. Regional banks with exposure to commercial real estate, like office REITS, are showing some weakness due to the lag effects of interest rate hikes. More banks have started crashing similar to what happened in the SVB crisis. Watch regional banks and commercial real-estate industries.

3. Chinese real-estate crisis.

4. Potential bank of Japan policy shift.

5. Increased U.S. and global bond issuances.

As always, I am not a financial professional, and this is not investment advice. Be careful and be patient. Dont anticipate the market. Rather, participate in the market. Don't invest money that you can't afford to lose. Give some of your investments time and know when to cut your losses.

Don't be greedy. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. Do your own due diligence. And just follow the trends. A trend is your friend. Good luck trading.