Yes, the inclement weather has doomed the stock market. You might now be thinking that what I am about to say is that the weather doomed the market because it weakened the economy. No, that's not it.
It's much more of a contortionist thesis here. The weather doomed the market for precisely the opposite reason. It doomed the market because the present economic weakness is going to be attributed to the weather by the only actor that's relevant in today's market: the Federal Reserve. We've already heard as much in several testimonies by Janet Yellen and other Fed officials.
This attribution means two things, neither of them good for the market:
- First, it means that in the March meeting the Federal Reserve will continue tapering the quantitative easing program;
- And second -- and this is where the weather really doomed the market - it also means that at least temporarily, coming out of the winter, economic data will probably bounce back. And as the economic data bounces back, there will be no reason for the Federal Reserve to stop tapering.
Since the market is only rallying on the back of continuing money printing, and the weather means the money printing will continue to be withdrawn, then the weather doomed the market.
Is it a bubble?
As an aside, people continue to ask themselves whether the market is in a bubble. It's hard to tell whether that's true or not for the whole market. But for many technology stocks, it's pretty easy to know we're in a bubble. One doesn't need to point out valuation multiples in the hundreds on high-flying stocks with no earnings, or record-breaking margin debt -- over $451 billion in January. All one needs to do is to paraphrase Hugh Hendry, a famous hedge fund manager:
"We are in 3D printing stocks. I say to my team 'don't tell me the valuations, it is trending,"
"This is the environment where Bitcoin could go to $1m. There is no qualitative reason, but it is trending. If I could own Bitcoin, I would. If I own 3D printing, it is just the same thing,"
There you have it, he'd even buy bitcoin in this market. That's as far as fundamentals matter -- which is nothing at this point -- and that's all you need to know to answer the question "is there a bubble?" Bubbles do pop, though.
The weather might have doomed the market. Not because it weakened the economy, but because it provided a reason for the Federal Reserve to accept the weakened economy. In this way, the Federal Reserve will continue tapering quantitative easing in spite of the weakness. And then we get a slight economic rebound from the end of the inclement weather and the Federal Reserve will thus continue tapering.
Finally, at least in regards to tech stocks, we are in the midst of a full-blown bubble. The end of quantitative easing might well pop that bubble.