SOS Myth - Stock market leads the Economy

Does the Stock Market leads the Economy?

What determines trend in BOTH stocks and economy is the trend in social mood. Stocks are its most sensitive barometer, that's why they react before the economy does. But don't mistake the stock market for the driver of future trends; it's just an indicator. Just because it's rising or falling doesn't mean it sets the tone; social mood does.

That's why expecting the stock market to pull the economy out of the recession is like expecting your right leg to lead the left one, while in reality BOTH are only following your brain signals.

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So what is a good tool to forecast the social mood? Elliot Wave? If you observe the US Market commentaries, you will realise they are looking via the rear mirror. Their comments are made to compliment the movement of the market.

When the market goes up, their comment will be, the recession is over due to better than expected result from the financial sector.

When the market goes down, their comment will likely be, after 7 months of rally, most investor is taking profits.

Lets look at another chart above on the KBW Banking Index. The moral of the story is not to get suck into the market by the media commentaries. Read the social mood.