Tim Quast, the founder and CEO of Market Structure Edge, recently asserted that the market is not a reliable indicator of how well the economy is doing.
Interviewed on Benzinga’s PreMarket Prep on Monday, the expert emphasized the importance of looking at supply and demand dynamics rather than economic fundamentals.
“You cannot look at the market and draw a big conclusion about what the economy’s going to do,” he said.
Reason: Most of the money in the market requires stocks as part of an asset allocation strategy. Many individuals in their thirties and forties with target date funds, in which 65% of the assets must be invested in stocks, generate demand in the market.
Cramer’s Fundamental Approach Is Like Gambling
Tim Quast criticized Jim Cramer for suggesting, “Just focus on companies with great fundamentals, and we’ll be fine.”
“It’s not true unless those firms produce enough product to absorb a portion of the money that’s allocated to equity,” Quast explained.
Recently, the demand for communication services has grown while the supply has decreased, leading to a rise in the price of stocks for businesses like Meta Platforms Inc. META and Pinterest Inc. PINS, the expert noted.
Using the Communication Service Select Sector SPDR Fund XLC as an example, when options expirations approached, the sector saw a price decline, thus attracting money managers to come in and allocate the flows from demand.
It’s a lot less effort than poring into fundamentals and hoping that profits or margins would be tied to performance. “Good luck with that, it’s gambling,” Quast said.
