Greece and the Market--7/2/2015

Well, just a few days ago Greece snubbed its nose at the EU and the markets across the globe fell about 3%, or so.  Since then they've bounced up a little, but the epic market fall that would have taken place if that announcement was made in 2008 or 2009 simply didn't materialize.  

Why?

Investors are more optimistic in their sentiment.  As readers of my work know, I am a big behavioral finance guy.  I think the markets are more a study of human behaviors and psychology than anything else.  And if investors are feeling fearful and close to a panic, like we saw in 2008, than an announcement like we had a few days ago would have caused the markets to crater...in my opinion.

However, we got a minor sell-off.  And this sell-off was probably caused my hedge funds realigning their bets, rather than individual investors fleeing the markets.  In fact when I talked to a client about their portfolio just yesterday, their response to my comments on the Greece market shock was, "What?  Oh yeah, Greece.  That's not a big deal."  

So, the positive vibes surrounding the consumers (and inherently investors) are causing them to overlook these blips and/or view them as buying opportunities.  Now, we need to recognize that this is happening and it does impact the markets, as described above.  This type of mood can be used to an investors advantage, BUT when these feelings begin to be a driving force behind the market moves then we have hit the point of a Reflexive Market.  And, again, readers of my work know what I'm saying by a Reflexive Market.  In a Bull Market, this is essentially the final stage of the Bull Market where irrationality rules the day.  I don't sense we are there yet, but the groundswell is building.

Oh yeah...Puerto Rico's debt was downgraded on the same day as the Greek announcement and a default appears imminent.  The Market's reaction...yawn.  What does that matter when the employment figures are so strong, the stock market has been rallying for several years, and the housing market is booming?  Perhaps that is the market participant's thoughts.